Good day, ladies and gentlemen. Welcome to the Genuine Parts Company Second Quarter 2025 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, July 22, 2025. At this time, I would like to turn the conference over to Tim Walsh, Vice President of Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to Genuine Parts Company's second quarter 2025 earnings call. Joining me on the call today are Will Stengel, President and Chief Executive Officer, and Bert Nappier, Executive Vice President and Chief Financial Officer. In addition to this morning's press release, a supplemental slide presentation can be found on the Investor page of the Genuine Parts Company website. Today's call is being webcast, and a replay will also be made available on the Company's website after the call. Following our prepared remarks, the call will be open for questions, the responses to which will reflect management's views as of today, July 22, 2025. If we are unable to get to your questions, please contact our investor relations department. 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, as defined in the Private Securities Litigation Reform Act of 1995. 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. With that, I'll turn it over to Will.

Thank you, Tim. Good morning, everyone, and thank you for joining our second quarter 2025 earnings call. As always, I want to start by thanking our over 63,000 global GPC teammates. Our teammates are at the heart of everything we do, and our team's relentless dedication and commitment to serving our customers is the core of our success. Turning to our results for the second quarter, a few highlights include total GPC sales of $6.2 billion, up 3.4% versus the same period in the prior year. Gross margin expansion of 110 basis points versus the same period last year, reflecting our strategic pricing and sourcing initiatives and the ongoing benefits from acquisitions, and continued progress with our global cost initiatives, which are helping to manage our SG&A profile in an inflationary environment. Our results for the quarter reflect execution of our strategic initiatives and cost actions, partially offset by ongoing weakness in market conditions and persistent cost inflation. We are operating in an environment that has presented several challenges, including enacted tariffs in the U.S., ongoing trade uncertainty, high interest rates, and a cautious end consumer. Despite this, we faced the challenges head-on, made prudent changes, and acted with purpose while continuing to progress our strategic priorities to enhance the business. Our diverse geographic mix, ongoing productivity and cost initiatives, along with disciplined investments we are making across the business, allowed us to close out the first half of 2025 with performance in line with our expectations. A key theme in 2025 has been the tariffs announced by the U.S. administration. Tariffs did not have a significant impact on our financial results through the end of the second quarter, but we expect to see an impact in the back half of the year if current tariffs remain in place. Bert will share more details about the scenarios we considered as we work to provide our latest forward outlook. There's a significant amount of ongoing internal activity associated with managing through the tariffs. I'm proud of the way in which the global teams have rallied together to leverage our global relationships and our OneGPC team approach to navigate the environment. We have a global cross-functional command center set up that meets multiple times a week to analyze and manage the changing data. Importantly, our focus in these times is to help support our customers. For example, I recently spent time in the field with motion customers. We were with a customer showcasing a proprietary digital tariff calculator built by our technology teams that helps our customers understand their specific exposure to tariffs and the solutions we can offer to help them problem-solve. This level of transparency and support has been very well received. Our capabilities at scale, access to global resources, and relationships with our strategic suppliers make a difference for our customers in moments such as these. As we discussed during the April call when we offered various guidance scenarios, we'll update you today with our latest perspectives, including how tariffs might impact us through the balance of the year. Our industry demand remains driven by break-fix customer needs, which results in an ability to pass through prices, and the competitive activity in our industries remains rational. The magnitude of where tariffs will ultimately land and how demand will be impacted remains fluid. That said, we remain cautiously optimistic about market improvement in the back half relative to last year, but likely with a slower pacing versus when we first gave our outlook back in February, which requires us to update the outlook. Despite that, the tone of recent customer discussions has been generally positive as many customers want to cautiously push forward despite the fluid environment. Customers are looking for value from their partners in this environment, and we are well-positioned to help with leading product assortment and service solutions. As we continue to operate in this dynamic environment, we'll stay focused on controlling what we can control, staying agile to serve our customers while focusing on the basics, investing with discipline, and executing initiatives at pace to enhance our operations and drive long-term value for our stakeholders. Turning to our results by business segment. During the second quarter, total sales for the global industrial segment were $1.8 billion, an approximately 1% increase versus the same period in the prior year, with comparable sales essentially flat. The second quarter represented the first quarter of sales growth for the industrial segment in the last twelve months. Looking at the performance across our end markets, we saw growth in five of our fourteen end markets, which is up from three in the first quarter, with strength in pulp and paper, aggregate and cement, and food products. This growth was offset by softer demand in markets with heavy exposure to global commodities, like iron and steel, automotive, and oil and gas. Our core MRO and maintenance business, which accounts for approximately 80% of Motion sales, was up low single digits during the quarter, with continued strength with our national account customers. The remaining 20% of Motion sales, which originates from more capital-intensive projects, including our value-added service offerings like fluid power and automation, was down low single digits during the quarter as customers continue to selectively defer orders. However, our current value-added solutions backlog has improved versus last year and has been showing positive momentum year to date. As it relates to other general market data, we were encouraged at the start of the year as industrial activity metrics like industrial production and PMI were trending in the right direction. Unfortunately, as the trade and tariff uncertainty picked up in March through the quarter, we saw the PMI sentiment metric revert below fifty and stay there for the last four months. As we've shared before, we remain bullish on the outlook for Motion once the industrial economy returns, as history shows that the industrial economy experiences sustained periods of growth following a contraction cycle. Despite the sluggish market, new industrial opportunities continue to arise as trade policies evolve, including, for example, data centers, semiconductors, power generation, and mining. We're also pleased to see continued progress with returns from our digital investments as we work to create a seamless, embedded, and personalized digital experience for our diverse customer base. E-commerce, which mostly represents our customer digital integration as well as motion.com, continues to deliver outsized growth driven by that leveraged Gen AI. Today, e-commerce sales at Motion are 40% of sales, up over 10% versus the start of 2024. Switching to industrial profit. During the second quarter, segment EBITDA was approximately $288 million and 12.8% of sales, representing a 10 basis point increase from the same period last year. The Motion team continues to execute pricing and sourcing initiatives as well as proactively managing cost with impressive discipline in this low-growth environment. Turning to the global automotive segment, sales in the second quarter increased 5.0% with comparable sales growth up approximately half a percent. Global Automotive segment EBITDA in the second quarter was $338 million, which was 8.6% of sales, representing a 110 basis point decrease from the same period last year. Our second quarter results for the Global Automotive segment reflect increases in salaries and wages, rent, and freight in each of our geographies. Before we turn to our results by geography in our automotive business, we wanted to touch on an important leadership transition we announced during the quarter in our North America automotive business. On behalf of the entire GPC team, we'd like to congratulate Randy Bro on his well-deserved planned retirement. Randy has been a key leader at GPC for 14 years and played a vital role in growing and improving our industrial business before coming over to lead our US automotive business in June of 2023 as part of an expanded role. We sincerely thank Randy for his outstanding contributions and leadership during his tenure at GPC. With Randy's retirement, we also want to congratulate Elaine Moss on his promotion from President of our Canadian Automotive business to the newly created role of President North America Automotive, effective August 1. Elaine brings over 14 years of progressive leadership experience within GPC and a deep understanding of the automotive aftermarket and NAPA operating model. His proven leadership and success in driving performance, combined with his relevant industry experience and established relationships, will help build on the momentum in our North America automotive business. Now let's turn to our automotive business performance by geography. Starting in the US, total sales for the second quarter were up 4%, with comparable sales essentially flat. Comparable sales for our company-owned stores were up, while independent purchases were down low single digits. Sentiment with independent owners is showing signs of improvement but still reflects ongoing pressure many small businesses are feeling from high interest rates in an uncertain macro environment. Sales out at both company-owned and independently owned stores improved sequentially versus the first quarter. By customer type, total sales to our commercial customers were up low single digits, while sales to our retail customers decreased mid-single digits. Within commercial, all four of our customer segments were positive, with notable strength and sequential improvement in auto care and major accounts. Looking at our product categories at a high level, we've generally seen consistent performance over the last four quarters, with non-discretionary repair categories being the strongest and up low to mid-single digits, maintenance and service categories flat to slightly up in the second quarter. This quarter, discretionary categories were flat, improved from last quarter, driven by specific category initiatives in our tool and equipment offer. The US automotive team is actively managing tariffs. Our total purchases exposure to China is approximately 20% of U.S. Automotive, which we believe is in line with or slightly below our competitors of scale. Our proactive efforts to strategically diversify our supply chain following the pandemic have served us well. Today, we continue to have active engagement with suppliers, but the number of inbound conversations to discuss tariffs has reduced versus April and May levels, and the magnitude of the cost increases has also moderated. Our scale and analytics position us well versus smaller competitors to react to and negotiate with a global manufacturing base. In fact, we recently hosted a supplier conference in China with all GPC automotive businesses to showcase the diversity and strength of our footprint. Additionally, during the second quarter, we acquired 32 stores from competitors in the US. These stores, along with the 44 stores acquired in the first quarter, strengthened our footprint in strategic priority markets. We continue to make great progress with the integration of the stores we acquired last year, including the acquisitions of Emtek and Walker. In May, we hit the one-year anniversary of the Emtek acquisition, and our integration and synergy capture are on track. We've now onboarded 100% of the stores to our systems and are focused on driving growth and operational improvements. Emtek is fully rolled into our comparable sales figure beginning in May, and Walker will fully roll into the comparable sales figure in August. Our progress with Walker is also on track operationally and financially. Turning to Canada, total sales increased approximately 5% in local currency versus the same period last year, with comparable sales increasing approximately 4%. Both our automotive and heavy-duty businesses are performing well, with heavy-duty outperforming in the quarter. In addition, several of our investments in Canada, including the new distribution center in Mississauga and a micro-market prioritization initiative, are driving results ahead of our expectations. We've seen differentiated growth in the local markets as a result of these targeted investments. Our Canada team is continuing to outperform the market despite an ongoing soft macro environment. In Europe, total sales were flat in local currency, with comparable sales down approximately 1%. The team in Europe is working aggressively to navigate a muted market, payroll and rent inflationary pressures, and a fluid geopolitical backdrop. Despite this, the expansion of the NAPA brand and wins with key accounts continue to perform well and deliver performance in line or better than market. Priority areas of focus in Europe continue to be profitable growth, pricing and sourcing initiatives, cost reduction programs, and the delivery of strategic projects. Rounding out automotive, our team in Asia Pac continues to take market share and delivered another quarter of double-digit growth in local currency, driven by both organic initiatives and contributions from recent acquisitions. Total sales increased approximately 13%, with comparable sales growth of approximately 5%. Both our trade and retail businesses put up strong numbers during the quarter, with retail continuing a strong run of standout performance. Retail sales were again up high single digits in the quarter and showing strength relative to the competition in all other local retail segments. Our in-flight initiatives are working well, and the local team is energized to build on the strong momentum. In summary, our first-half results were in line with our expectations despite a dynamic environment. As we start the second half of the year, we're focused on controlling what we can control while proactively navigating the external environment. We're cautiously hopeful given both green shoots of encouraging data points but are appropriately updating our near-term outlook given the uncertainty. If we take a step back for a moment, we operate in two highly fragmented markets, attractive industries that are break-fix in nature. Our diversified geographic presence and balanced business portfolio provide meaningful differentiation. Our scale and strong global partnerships continue to offer advantages relative to many smaller competitors as we can offer customers differentiated solutions. The near and long-term fundamentals of our markets are attractive, and we remain intensely focused on executing our global strategic priorities to create shareholder value. In closing, I want to thank our shareholders, customers, and business partners for their trust and ongoing support. And importantly, I extend my appreciation again to our GPC teammates for your hard work. I'll now turn the call over to Bert.

Thanks, Will, and thanks to everyone for joining the call. Our second-quarter performance was in line with our expectations as we offset continued weakness in market conditions and tariff uncertainty with execution of our strategic initiatives and cost actions. Our discussion of our second-quarter performance and outlook will focus primarily on adjusted results, which exclude the non-recurring costs related to our global restructuring program and costs related to the acquisition of Emtek and Walker. During the second quarter, these costs totaled $46 million of pre-tax adjustments or $37 million after tax. As expected, earnings were down in the second quarter as our profitability was negatively impacted by lower pension income and higher depreciation and interest expense, which cumulatively totaled a $0.29 negative EPS impact. As we shared in April, we expected these factors to drive second-quarter earnings down by 15% to 20%, and we finished the quarter with an adjusted EPS of $2.10, down 14% to prior year. Our results for the quarter include an immaterial benefit from the impacts of the newly enacted tariffs. I'll provide some additional comments around tariffs in connection with our outlook. Now let's turn to the details of the quarter. Starting with sales, total GPC sales increased 3.4% in the second quarter, which included a benefit from acquisitions of 260 basis points, a 20 basis point improvement in comparable sales, and a foreign currency tailwind of 40 basis points. Inflation and pricing were a little more than 1%, including the impact from tariffs. Notably, while PMI remained in contractionary territory throughout the quarter, industrial segment sales increased approximately 1% year over year. Our gross margin was 37.7% in the second quarter, an increase of 110 basis points from last year. The improvement in our gross margin was driven by the ongoing execution of our sourcing and pricing initiatives along with the continued benefit of acquisitions. Our one-year anniversary of the Emtek acquisition occurred on May 1, and we will hit the one-year anniversary of the Walker acquisition on August 1. As a result, we would expect the rate of gross margin expansion in the second half of 2025 to be below what we reported in the first half. Our adjusted SG&A as a percentage of sales for the second quarter was 28.7%, up 150 basis points year over year, with the rate of deleverage continuing to improve sequentially. On an adjusted basis, SG&A grew in absolute dollars by approximately $145 million, including nearly $85 million in impacts from acquisitions and foreign currency. The SG&A impact of our M&A activity will diminish over time as we anniversary the remaining acquisitions and continue to realize the anticipated synergies from the integration of these businesses. Our core SG&A grew $60 million in the quarter, or approximately 3.5%, as we continue to manage the rate of growth in our core expenses. Within our core SG&A, the increase was primarily driven by salaries and wages associated with our annual merit adjustments for our teams, which generally occur on April 1, as well as higher year-over-year incentive compensation costs as our programs are reinstated to target levels. In addition, increases to rent expense as renewals occur in higher rate environments and higher freight expenses as we improve service to our customers drove core SG&A increases in the quarter. We continue to work to improve our long-term cost structure, aligning to market realities and ultimately getting to our expectation for leverage and SG&A. Our results for the quarter include the benefit of the actions we are taking associated with our restructuring activities. During the quarter, we incurred restructuring costs of $45 million and realized approximately $33 million of cost savings, for a benefit of $0.18 per share. Our global restructuring and cost actions are progressing well, and we remain on track to deliver our 2025 targets. For the quarter, total adjusted EBITDA margin was 8.9%, down 60 basis points year over year. While gross margin improved in the quarter, profitability declined due to headwinds from inflation-driven cost increases in salaries and wages, rent, and freight expenses, as our inflation in SG&A continues to outpace the benefit of inflation in our sales by approximately 100 basis points. Turning to our cash flows, for the first six months of 2025, we generated approximately $170 million in cash from operations. The reduction in our operating cash flows year over year is partially driven by lower earnings in the first half of 2025 and accelerated tax payments versus 2024. The remaining decrease is driven by a tough comparison to the first half of 2024 in connection with the inventory investments we were making at NAPA a year ago, including the associated build of accounts payable. These did not repeat in 2025 as we returned to more normal replenishment levels. As you recall, in 2024, we were investing in inventory at NAPA following the termination of two key suppliers in late 2023 and an overall program to improve inventory availability. In 2025, we have invested approximately $250 million back into the business in the form of capital expenditures as we continue to invest in our supply chain and IT systems. In addition, we have invested $112 million year to date in the form of strategic acquisitions. We continue to make good progress on our long-term strategic investments to profitably grow our business with discipline and a strong focus on returns from these investments. And finally, through the first six months of 2025, we have returned $277 million to our shareholders through our dividend. Now turning to our outlook. As we detailed in our press release this morning, we are revising our 2025 outlook to include the impact of tariffs in place as well as our updated view on market conditions for the second half of the year. For the full year, we expect diluted earnings per share, which includes the expenses related to our restructuring efforts, to be in the range of $6.55 to $7.05, compared to our previous outlook of $6.95 to $7.45. We expect adjusted diluted earnings per share to be in a range of $7.50 to $8.00, compared to the previous outlook range of $7.75 to $8.25. In April, we shared views on potential downside scenarios with respect to the tariff environment, including our view around the timing of the resolution of the 90-day pause announced by the U.S. administration. As a reminder, with respect to the pause, our downside view was anchored on the premise that if the tariff situation was not resolved during the pause, market and customer demand in the quarter would be impacted, and the momentum we needed to drive our expectations for a more robust second half would be negatively impacted. Unfortunately, that downside scenario played out as we outlined and is the principal driver of our revised expectations for 2025. Our revised guidance for 2025 reflects moderated growth expectations for our auto and industrial businesses for the second half, lowering our growth rates in each business by approximately 100 basis points for the year. Our revised view on growth is further supported by current PMI readings, which began 2025 above 50 and now remain in contractionary territory below 50 as we begin the third quarter. In addition to moderated growth expectations, we've updated our guidance to include our estimate of the impacts of the current tariff environment. For the remainder of 2025, our revenue growth includes a low single-digit pricing benefit, and our cost of goods sold includes a low single-digit cost increase. In total, our assumptions related to tariffs produced a slight benefit to our expected results for the second half. However, they did not offset the revisions we made to our market condition assumptions I just outlined. As we evaluated the numerous implications of the tariffs on our business, we considered the following factors: impacts to our revenue, including the pace and timing of potential same-SKU price adjustments, as well as overall market conditions and fluctuations in underlying demand for parts and services; increases in product costs as we continue to engage with our supplier partners; adjustments to our supply chains, including operational impacts with inventory availability and suitable substitutes, as well as higher freight costs associated with the movement of goods; inflationary cost increases in SG&A as the tariffs have the potential to drive higher salaries, wages, rent, and interest in foreign currency rates. As we await greater clarity on the tariff and trade environment, let me share with you three things that we'll be watching closely as we consider our expectations for the remainder of 2025. First, the breadth and magnitude of tariffs. As evidenced from the news cycle in July, this is still a very fluid environment. We have factored in the tariffs that are currently in place, but any significant changes to the breadth or magnitude could have a further impact on our outlook. Second, any evidence of demand destruction. While we have not seen significant signs of demand destruction at this point, as tariffs continue to augur into the broader economy, we will be watching closely for any change in customer behavior. And finally, inflation and costs. Through the second quarter, we have not seen a material change in the levels of expected cost inflation, but as tariffs continue to impact the economy more broadly, we will continue to watch inflation and our costs. I'd like to make a few additional comments regarding our outlook. Starting with the year-over-year headwinds, on slide eleven of our earnings presentation, we've included an illustration of some key drivers impacting our 2025 outlook. Recall that our outlook includes an expected headwind from a loss of pension income, as well as higher depreciation and interest expense. Collectively, these headwinds produce approximately $1.00 of EPS headwind in 2025 when compared to 2024. Our outlook assumes foreign currency rates at current levels. Our outlook excludes the previously announced one-time noncash charge we expect to record when our U.S. pension plan termination settles, expected for late 2025 or early 2026. And finally, I would like to provide some color regarding our expectations for the third quarter. July sales trends are off to a solid start, and we have not seen any notable changes in demand to begin the quarter. However, the cumulative effect of broad-based tariffs on demand remains a risk. For the third quarter, we expect adjusted earnings to be up a range of 5% to 10% relative to the prior year. With that, our revised guidance assumes total GPC sales growth in the range of 1% to 3% for 2025. Our outlook assumes that the market growth will be roughly flat and that the benefit from inflation will be approximately 2%. It also assumes the benefit of M&A carryover and about a point of growth from our strategic initiatives. These benefits are partially offset by one less day in the first quarter of 2025. Our assumptions for gross margin expansion and SG&A deleverage remain unchanged from our previous guidance. For 2025, we expect to incur restructuring expenses in the range of $180 million to $210 million, up $30 million from the midpoint of our previous outlook as we expand these activities in light of continued market weakness. The additional actions provide a slight improvement to the expected benefits in 2025, up $10 million from the midpoint of our previous expectations, and are included in our revised outlook. When fully annualized in 2026, we expect our 2024 and 2025 restructuring efforts and cost actions, including the new actions implemented for the second half of 2025, to deliver over $200 million of cost savings. By business segment, we are guiding to the following: 1.5% to 3.5% total sales growth for the automotive segment, with comparable sales growth flat to slightly positive. We expect the automotive segment EBITDA margin to be flat to slightly down from last year. And for the industrial segment, we expect total sales growth of 1% to 3%, with comparable sales growth in the flat to 2% range. We expect Global Industrial segment EBITDA margin to expand by approximately 20 to 40 basis points year over year. Finally, we now expect to generate cash from operations in the range of $1.1 billion to $1.3 billion and free cash flow of $700 million to $900 million, down from our previous outlook. The reduction in our cash flow forecast for 2025 is a result of our revised earnings guidance for the year, as well as the increase in one-time costs associated with our restructuring program, which drives a further benefit in 2025 and 2026. In closing, the external environment remains complex, with the tariff landscape driving heightened uncertainty across many prisms. Our teams are doing a remarkable job working with our vendors and customers to navigate the tariff environment. We are confident our teams have the capabilities and resources they need to manage the business through these changes. As we look ahead to the remainder of the year, we remain confident in the underlying fundamentals of our businesses and the strategic investments we are making to improve our position for the long term. Our near-term focus remains on operating with agility and discipline while continuing to serve our customers around the world.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. We request that our callers limit their questions to one question and one follow-up. Your first question comes from Bret Jordan with Jefferies. Your line is now open.

Hey. Good morning, guys. Could you talk about sort of what you're seeing on fill rates in the independent NAPA stores? Like you said, selling was down low single digits. But is that sort of in line with what they're seeing from sellout and their inventory levels are generally stable, or are they destocking to some extent?

No. We've seen a really nice improvement, actually, in the independent owner inventory positions. As we've been working with them closely over the last twelve plus months to make sure that they were in great positions. That correlation between kind of purchases and sales out is as tight as it's been in the last couple of years, which is a good indicator. What's also a positive indicator is that the sales out from independent owners line up nicely with what we're seeing there on company-owned stores, which is up low single digits. So as we think about the sequential improvement through the first half and where we are today relative to twelve months ago, we're positive.

And I guess the follow-up question on pricing around the tariff increases and what you might see in the second half. Are you seeing that you're being able to attach full margin to the inflation? Like you said earlier, the pricing in the market's rational. Are you getting sort of a good pass-through on that cost increase?

Yeah, Bret. This is Bert. I'd say yes. I don't know that it's a net benefit at this point to gross margin, but I would say that at this point, we're pretty balanced between the cost increase that we're feeling from the supplier side and then what we're able to move into the market from a pricing dynamic.

I would just add that the complexity, I mean, it's a simple statement, but the complexity to arrive at that result is pretty high. So I just want to take the moment to acknowledge the teams. I mean, we talked about the command center. You know, in both of our big businesses, you've got anywhere from eight to ten different categories of tariffs. You've got, you know, millions of SKU combinations, multiple vendors. So it's a SKU by SKU, day by day game. And that's why I think we make the comments about the resource and the tools that you need and the expertise and talent you need to navigate this situation is high, and we feel really good about the work that's being done at the company.

And I guess still pretty fluid, but how do you see the cadence of these price tailwinds into the second half? It sounds like we might see a few points price, but is it really built into the fourth quarter?

No, Bret. I mean, I think the cadence accelerates from here. We talked about having an immaterial benefit both in the first quarter and the second quarter. So I think the cadence really builds from here as we look to the rest of the year. If I had to weight it, it probably has a little bit more impact here in the third quarter as we start to see some of those come through. And I think it levels out to more normalized kind of experiences there in the fourth quarter.

Great. Really appreciate it. Thank you.

Yep. Thanks, Bret.

Your next question comes from Scot Ciccarelli with Truist. Your line is now open.

Good morning, guys. I guess a little bit of a follow-up and then a primary. Can you guys just provide a bit more color on your expectations for same SKU inflation in the U.S. business? And it looks like you're assuming a little bit of negative unit elasticity. If you can provide more color around that, that'd be helpful. And then second, on the margin front, global auto margins are down over a hundred basis points from kind of where you were a year ago or two years ago and would have been a pretty steady rate for many years. Given the puts and takes you've identified, should we assume kind of the rebasing that we've seen is the likely go-forward rate on auto margins? Thanks.

Yeah, Scot. So on the first part of your question, I would say that our US assumptions, maybe I'll pull it up just a little bit. Our assumptions around inflation in the second half aren't materially different between the two segments. And they're not materially different between the geographies. And so when we think about how we've factored in a little higher assumption around the inflation rate, that obviously had a lot to do with the tariff environment. If I had weighted, I'd weight it a little bit more to the NAPA business for the industrial business, and I'd weight it more US than I would the other geographies. We are impacted when we think about the tariff most predominantly between NAPA and the motion business, although Canada will feel some of the impact there as well. So that's kind of how we're thinking about the inflation part of the rest of the year. I think on the second part of your question, you know, the key headwind right now for profitability in the automotive business is or the global automotive segment is the inflation that we're feeling across the world. So we've got a little bit upside-down correlation between the cost that we're feeling from an inflation perspective in SG&A and the benefit that we're getting in the top line. And this is true for each geography. So when we think about the US, we feel that difference. Inflation is probably running in the three, three and a half percent. It's a little higher actually in Europe and Asia Pac. And in every case, we see a delta that, as I've in my prepared remarks, is about a hundred basis points between the top line and the SG&A cost impact. So that's really why we've been thinking about all the work we're doing on the cost front, the restructuring actions we're taking, to try to bend the curve. I think we've made a lot of progress on bending the curve. As you heard me talk in my prepared remarks about sequentially improving the deleverage. To the latter part of your point about is this the new baseline for the global automotive business, I mean, that's not our objective is to keep it with declining profitability. We're doing all this work and we're taking all these actions to improve profitability over the long term. In the near term, we've got some very, I think, specific challenges with respect to this higher cost inflation. And as we look into the second half of the year, I think you're going to see, as I also said in my prepared remarks, an improvement in the profitability of the business, and we can't get there without an improving global automotive segment.

Got it. Thanks a lot. Very helpful.

Yep. Thanks, Scot.

Your next question comes from Chris Horvers with JP Morgan. Your line is now open.

Thanks. Good morning, guys. So first, a question on the motion business, the top line. Can you talk about how you think about maybe the cadence of that? Is there an assumption that the tariff uncertainty dies down and that the organic growth rate accelerates as you proceed through the year? And qualitatively, is some of the improvements at the margin that you're seeing in the business, is that fueling your view, or does that just sort of provide hope that it might happen in the fourth quarter?

I'll take the second piece first, qualitatively. I mean, the improvements in the business are real and something that we're really proud about. We're doing a lot of work out in the field, making sure that we're covering our customers with selling resources the right way. So we've done some restructuring around making sure we're bringing our best industry technical experts to all of our customers in a different way. The intensity around making sure that we're calling on not just corporate accounts, but medium and small-sized customers. I made reference to the digital investments that we're making, which is an important way in which we connect with our customers electronically, that's seen amazing growth. So the sales effectiveness in quotes, strategies, and initiatives that we're running are building really, really nice momentum. On top of all of the really thoughtful pricing and sourcing initiatives and then cost discipline. So we are just desperate like everybody else for the end market to cooperate with us, and when it does, we're looking forward to much, much brighter days ahead. But we're doing a lot of self-help right now to make the best of a challenging market.

And Chris, I'll just add, you know, your point there about are we seeing more or less uncertainty with respect to tariffs. I think we found ourselves at a moment, which is why we added the tariffs into our guidance with more clarity but not full clarity. And I think that's allowed us to factor in what we see as of the environment over the last ninety days, we have a body of work to be able to manage and work with and understand. As Will has outlined, our teams are working diligently each day to understand that and factor that into the business, and I think that gave us some confidence to put some of our initial expectations into the outlook. But look, I think as we look ahead, there's more to come. I mean, we're in another pause here until August 1 in many respects. I think the current pause for China is August 10. And I think as we think about the longer view, tariff clarity would be a positive unlock in many respects, and I think it would give our customers some confidence about how they think about the go-forward. Now having said that, the rest of the year for motion, we do start the quarter in expansionary territory. The outlined downside scenario that we gave you all back in April played out, and that's why we moderated our expectations for motion for the rest of the year. But moderated doesn't mean we're not still seeing some positive things, as Will commented on. And it gives us the confidence to, while lower, still feel good about the growth for motion in the second half. Some context for that is we do have easing comparisons as we get into the rest of the year. If you recall a year ago, the reported results in the industrial segment were negative in both the third and the fourth quarters. And so as we look ahead, particularly as we exit the second quarter with positive growth in motion despite this continued sluggish PMI backdrop and built on the commentary that Will shared about customers looking to move forward despite some of these headwinds, we feel good about the guide. It does accelerate in Q3, and then it accelerates again in Q4. But on that two-year stack, I think what we're expecting is fairly reasonable.

And just to clarify, the positive organic motion to start the third quarter?

Yes. I think so. Look. I mean, we've, like I said, we had a negative growth territory in Q3 and in Q4 last year. And so we're continuing to see positive trends in the motion business, albeit at a little bit moderated pace from when we started the year.

Got it. And then, you know, a follow-up question on the US NAPA business. You know, as you think about the independents being down, the core stores being up, I think some people out there believe that, you know, maybe this gross margin expansion is you're taking too much price, and that's causing some share shift dynamic, share headwind dynamic. Doesn't look like that in the company-operated stores. So I guess what is different about independents going back to, you know, Bret's question just to kick off the Q&A.

Yeah. Look. I think we feel really good about how we're positioned from a price perspective in the market. There's a lot of science to it. We've got good visibility into where the market is, and as we've talked about before, it's SKU by SKU, but we study that and feel good about it and have a thoughtful strategy there. I think as it relates to kind of what's different between the independent owner performance and company-owned stores is really just the kind of the pace at which they get comfortable with the uncertain world that we live in. And, you know, as a big corporate organization, we work and navigate it centrally here and pull levers and move at pace, and we have to work with those independent owners, of which there's roughly 2,000, to understand what's going on in the market, help them realize what inventory they need to put in, and then partner with them to make sure that it makes sense. And that just takes time. But the most important takeaway is the work that we're doing in the business, whether it's company-owned stores or the way in which we're working with independent owners, is sequentially improving as designed, and we're going to stay after it and continue to work through them, but that's the value prop that we bring to these really important stakeholders, which is the independent owners.

Great. Thanks very much.

Thanks, Chris.

Your next question comes from Greg Melich with Evercore. Your line is now open.

Hi. Thanks for the follow-up on inflation margins and then on the cost side. So first on inflation, I want to make sure I got it right that it's 200 basis points for the year for the company. So that's implying the back half is 300 basis points after 100 basis points in the first half?

That's a fair estimate, Greg.

Got it. And so I guess, is that the main reason why the guidance has margins up in the back half after having fallen in the first half? Or is there other things for?

No, Greg. I would say, look, I mean, our expectation for the year has always been to have an improving second half. I think part of that is driven by the expectations around a better top line, although we've moderated that to some degree. But the other thing I would point out is that we really have been working very diligently on our cost structure. And when you combine accelerating benefits from cost actions, the full-year impact of last year's restructuring work, the additional actions we've just implemented here at the end of the quarter, gating on the synergies around many of the acquisitions we executed in 2024, the totality of that body of work helps to drive a better bottom line as we look into the second half of the year. We've just come off of a quarter in which a sluggish top line wasn't enough to offset some of these headwinds that we had, and we've communicated to everyone. But as we look into the third quarter, as I mentioned, we're looking for earnings to be up somewhere between 5% and 10%. And that means the combination of everything within the business, the top line, the cost actions, the continued improvement in gross margin, all of those things in total I think give us a better outlook for the second half of the year in terms of how we'll perform from an earnings perspective.

And what was the incremental $30 million of restructuring expense? What was that spent on? And that $200 million of savings, is that already started to flow in, or does that come next year?

Well, no. I mean, we've already got the combination of actions we took last year along with the actions we've implemented in 2025 are already benefiting the current year. As we shared, for the quarter, we had an $0.18 benefit in the full year. The $200 million is what we're looking at as an annualized benefit getting into 2026. Obviously, we'll give you a sharper view on that as we give you a 2026 guide. But we think the way we're tracking at this point allows us to be confident that that will be an over $200 million annualized benefit as we go ahead. In terms of the additional actions we've taken to end the quarter, I would just say and keep it kind of simple, we're just continuing to lean into simplifying our operations and streamlining our back office. We've got great opportunities to do that across some IT, looking at global efficiencies, and really being sure that we can be smart. Obviously, some of our weakness has been in Europe, and so we're looking to be smarter in terms of how we streamline things there as well and gain efficiencies. So we think the investment we made at the end of the quarter here to a few more actions is the right one. It's what you do when you continue to face a sluggish outlook and a weaker outlook and not turning as fast as you expected, and it's what you would expect us to do. So get a little bit more benefit for that in 2025. We've included that in our outlook, and that's the reason we also had a little bit of a tweak in our cash flow outlook as well.

Well, thanks, and good luck.

Thanks, Greg.

Your next question comes from Michael Lasser with UBS. Your line is now open.

Good morning. Thank you so much for taking my question.

No problem, Mike. Good morning.

Thank you very much. Genuine Parts Company is a large and complex organization. In the past, the company has taken action to streamline the portfolio. At this juncture, would you be able to accelerate the deployment of your strategies and the successful execution of those initiatives if you were to have more of a streamlined organization, and how does that fit into your thinking today?

Michael, I'll take that one. Listen. We love both of these businesses. They're great businesses. They're large markets, attractive markets. They're similar in many ways in the sense that the initiatives that we're doing at the business are additive to both, and we've leveraged that over the last two or three years to accelerate our execution to make both businesses better. So I would say, you know, the benefit that we get from having these two businesses together as we push forward in the near term. To execute on specific initiatives, whether it's sales effectiveness, tech initiatives, supply chain, they're all relevant. We feel good about making both sides of our business better at pace, and being separate certainly at this moment probably doesn't give us a pace benefit because of the way in which we're all working together. So we feel good about how we're positioned today. And constantly thinking about how to make the business better, you know, in each of our verticals, but also in the aggregate.

Okay. My follow-up question is, on the auto business. It's performed consistent with what you expected in the first half of the year. You have now taken into account all of the tariffs. You're going to get a couple hundred, maybe a few hundred basis points of like-for-like pricing in the back half of the year. So a, is that what you expect the industry to see from a like-for-like pricing benefit? And b, why are you lowering your top-line outlook for this segment in light of those first two factors?

Maybe I'll take the second part of your question first, Michael. And just give you some color on the way we thought about kind of the elements of the top line. And we gave those comments at the segment level, so I'll try to break it down a little bit, and there's a lot of moving pieces here. We certainly saw, you know, the inflation benefit that we gave you move up, that's predominantly on the back of what we see as more tariffs and the pricing benefit from tariffs being in the low single-digit range that I shared in my prepared remarks. You know, the question is a good one. Why not keep the revenue outlook flat? Why do you change it? And I think that really gets into unpacking the different elements. They don't impact us in a linear fashion. So maybe we'll start with Europe as an example. Europe market conditions, while they haven't gotten any worse, they certainly didn't get any better in the second quarter, and we don't expect them to get much better for the rest of the year. And so when you think about a Europe business in which we've moderated expectations, we've done that on the top-line base revenue assumption, but there was no tariff benefit to offset any of that. And so you have a pure negative there. When you move back to the US and you look at the automotive business, we did moderate some of the base assumptions there, but we do have an offset there. And so that impact is a little bit more balanced. I would say still leaning towards a net headwind when we think about that. Then you move into the rest of the automotive segment, you think about Canada again moderated top line, but with a little bit of tariff consideration. Asia Pac, another one like Europe, taking down the revenue with no tariff offset. So I think when you take the totality of that, and let's remember, we're giving you guys ranges. They're meant to be guideposts. And we can land the plane in varying degrees of those guideposts. And so I don't want to be overly precise about something that's pretty imprecise given the backdrop. But I would just say that hopefully that gives you some color about how we thought about the individual pieces. It is complex. We do have some tariff offsets in certain regards, but in other places, we didn't. And the net totality of that was to bring the revenue outlook down for the year.

Hey, Michael. I might just also add, you know, as it relates to is our same SKU inflation outlook relevant for everybody else. I don't know. All of our businesses are different. All of our country of origin nuances are different. Our exposure to steel is different. We had some industrial competitors out that, you know, had a different view of their inflation outlook. So I know that's not what the investment community wants to hear because we want to extrapolate, you know, our information to others, but I think I would offer up some caution on doing this. We've done the work that we think is most appropriate and thoughtful for our business. And how that relates to others, I'll leave it to the experts to figure out.

Thank you so much, and good luck.

Your next question comes from Kate McShane with Goldman Sachs. Your line is now open.

Hi. Good morning. Thanks for taking our question. We just wanted to drill down a little bit more on the performance in the European segment by country and just wondered how much of your initiatives like the NAPA brand expansion are helping offset some of maybe those broader macro headwinds.

Yeah. Thanks, Kate. You know, we had kind of mixed performance throughout Europe. The key takeaway is that while it was mixed, it sequentially improved in most geographies in the second quarter. So as we closed the second quarter, we saw improvement in the majority of our geographies. The NAPA branded product is a real differentiator for us in the market. And what we're seeing, and we've made some public comments about this, I mean, in these markets, your customers are looking for value. And that's at the core of the NAPA offering in Europe, and it's first of its kind in many ways. And so we've got good penetration in all of our geographies from a NAPA branded product standpoint. And it's absolutely helping us offset a sluggish market over there. So I'd say mixed. Not one market, kind of an outlier. But all kind of mostly sequentially improving as we went through the second quarter. Thanks again, everybody, for your interest in Genuine Parts Company. We look forward to giving everybody an update on our call in October. Have a great day, and thanks so much.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.