Good day, everyone. Welcome to the Genuine Parts Company Third Quarter 2025 Earnings Conference Call. This call is being recorded. At this time, I would like to hand it over to Tim Walsh, Vice President of Investor Relations. Please proceed, sir.

Thank you, and good morning, everyone. Welcome to Genuine Parts Company's Third Quarter 2025 Earnings Call. Joining us 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 Investors 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, October 21, 2025. If we're 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 third quarter 2025 earnings call. As always, I want to start by thanking our over 63,000 global GPC teammates. Our people are at the heart of everything we do, and our team's dedication and commitment to serving our customers is the core of our success. Turning to our results for the third quarter. A few highlights include total GPC sales were $6.3 billion, an increase of approximately 5% versus the same period in the prior year with sequential improvement in comparable sales growth at both U.S. Automotive and Motion. Gross margin expansion of 60 basis points versus the same period last year, reflecting the ongoing benefits from our strategic pricing, sourcing initiatives and acquisitions. Adjusted EBITDA up 10% year-over-year with improvement in EBITDA margins in both our Automotive and Industrial segments for the quarter. And adjusted diluted earnings per share of $1.98, an increase of 5% from the same period last year. Our third quarter results were in line with our expectations and reflect the ongoing execution of our growth and productivity initiatives. Our end markets remain muted, most notably in Europe, but we're working around the world to earn business with existing new customers. Globally, customers remain cautious and looking for the best value as they make purchasing decisions. Tariffs, trade uncertainties, elevated interest rates, a cautious consumer and muted industrial spending are familiar challenges, but the teams have adapted to working in dynamic environments and remain resilient and determined. We have also been proactively managing the business to offset an inflationary cost environment and will stay disciplined. As it relates to tariffs, we continue to leverage our strategic supplier partnerships and collaborative GPC global approach. As we expected, the sales benefit from inflation was slightly more pronounced in the third quarter relative to the second quarter. In 2025, we've performed in line with our expectations for the last 3 quarters and are narrowing and updating our guidance range for the remainder of the year. Bert will share additional color on the impact of tariffs and financial considerations as we push to close the year. We'll remain agile and focused on what we can control. Turning to our results by business segment. During the third quarter, total sales for Global Industrial were $2.3 billion, an increase of approximately 5% versus the same period in the prior year, with comparable sales up approximately 4%. Sales inflation during the third quarter was approximately 3%. We're encouraged by the sequential improvement in the third quarter sales performance and believe we're performing in excess of the market growth. During the quarter, industrial activities metrics like industrial production and PMI remained soft since the trade and tariff uncertainty started in March. We've seen PMI below 50 for the last 7 months although there's been some sequential improvement with the most recent reading slightly below 50. Despite the market conditions, we're bullish on the outlook for Motion as their size and scale, competitive positioning and customer value proposition are differentiators. We see emerging industrial opportunities develop like onshoring as trade policies shift and our Motion team is taking advantage of those opportunities as they present themselves. Looking at the performance across our end markets, we saw growth in 7 of our 14 end markets, which is up from 5 in the second quarter with strength in iron and steel, food products and fabricated metals. We're also pleased with the traction with our data center initiative, which continues to build momentum. This growth was partially offset by softer demand in pulp and paper, lumber and wood and oil and gas. Our core MRO and maintenance business, which accounts for approximately 80% of Motion sales, was up mid-single digits during the quarter with shared strength in both our small- and medium-sized and corporate account businesses. In 2025, our corporate account customer renewal rate is 98%, and we've won over 30 new contract relationships year-to-date. The remaining 20% of Motion sales, which originates for more capital-intensive projects, was up slightly during the quarter as customers continue to selectively pursue larger projects. However, customer sentiment continues to improve, and our large dollar order backlog has increased sequentially throughout the year, now up approximately 20% versus the start of the year. Switching to industrial profit. During the third quarter, segment EBITDA was approximately $285 million and 12.6% of sales representing a 30 basis point increase from the same period last year. The Motion team continues to operate with discipline as they both manage a sluggish demand environment and offset pressure from inflation in costs. Motion's organization and cost structure is set up for the eventual rebound in industrial demand, and we would expect to see good operating leverage once the market influx. Turning to the Global Automotive segment. Sales in the third quarter increased approximately 5% with comparable sales growth up approximately 2%. During the quarter, the Automotive segment saw inflation in pricing of approximately 2%. Global Automotive segment EBITDA in the third quarter was $335 million, which was 8.4% of sales, representing a 10 basis point increase from the same period last year. The improvement year-over-year reflects stronger top line growth as well as benefits from restructuring and cost actions to offset ongoing inflationary cost pressures from wages, health care, rent and freight. Now let's turn to our automotive business performance by geography. Starting in the U.S., total sales for the third quarter were up approximately 4% with comparable sales up approximately 2%. We saw quarterly sequential improvement in sales growth from both our company-owned and independently owned stores, with comps for our company-owned stores up approximately 4% and independent purchases up approximately 1%. Our focus on operating better company-owned stores is a key priority and advancing very well. As an additional and important data point, when we look at the comparable sales performance of NAPA to the end customer, which includes our company-owned store sales as well as the sales out from the independent owned stores to the end customer. The total NAPA system delivered end customer sales growth of approximately 3%. This metric also sequentially improved from the second quarter, which was approximately 1%. We're also pleased with the sequential improvement in the buying behavior of our independent owners, but we'll remain diligent to ensure we're partnering with owners in a challenging market. We do this with defined initiatives that help our owners manage their operations and be more successful. We believe the work we're doing to better partner with our independents is having a positive impact and this effort will remain a high priority for the team going forward. By customer type, comparable sales to our commercial customers were up low- to mid-single digits while sales to our retail customers decreased low single digits. We saw sequential improvement with AutoCare and major accounts, which were both up mid- to high-single digits. A priority is to earn more share of wallet with our AutoCare and major account customers, and the team is building solid momentum. Looking at our product categories, we've seen sequential improvement in both our nondiscretionary repair and maintenance and service categories, which were both up mid-single digits in the third quarter. In these categories, which account for approximately 85% of our U.S. Automotive business, we continue to see break-fix demand fundamentals despite higher prices driven by tariffs. Discretionary categories were again flat, driven by specific category initiatives in our tool and equipment offering. Customers are using discretion and looking for value, however, deferred maintenance will ultimately need to be addressed. Additionally, we continue to strengthen our relative footprint in strategic priority markets acquiring over 85 locations from independent owners and competitors in the U.S. year-to-date. Turning to Canada. Total sales increased approximately 3% in local currency versus the same period last year, with comparable sales increasing approximately 2%. Both our automotive and heavy-duty businesses are performing well with heavy-duty outperforming in the quarter. The economic conditions in Canada have weakened through the course of the year, but our team continues to outperform the market. We're pleased to share we've signed a definitive agreement to acquire Benson Auto Parts, one of the largest independent aftermarket players in Canada, operating approximately 85 stores in Ontario and Quebec. This is an attractive strategic transaction that adds talent, store footprint in priority markets and a diversified product offering to better serve our customers in Canada. We expect the transaction to close in the fourth quarter and is subject to customary closing conditions. In Europe, total sales were flat in local currency with comparable sales down approximately 2%, consistent with what we saw in the second quarter. These results were below our expectations. The team continues to navigate a soft market that has moderated further in the second half versus our expectation. The team is managing inflationary cost pressures with a fluid political landscape. Despite this, we believe we're performing in line with the market with strength driven by the NAPA brand and key account customer growth offset by generally cautious spending and deferred maintenance. Rounding out Automotive, our team in Asia Pacific continues to post solid results and win market share. Our team delivered another quarter of double-digit growth in local currency, driven by both organic initiatives and contributions from acquisitions. Total sales increased approximately 10% with comparable sales growth of approximately 5%. Both trade and retail businesses put up strong numbers during the quarter, with retail continuing a strong run of standout performance. Retail sales were up again 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. It's also appropriate to formally comment on the recent press coverage associated with First Brands. Genuine Parts Company has a commercial relationship with First Brands, predominantly across our Global Automotive business. Our relationship represents approximately 3% of Global Automotive sales. We're coordinated as a global GPC team and engaged in ongoing discussions with First Brands to partner as they navigate their situation. Service levels, product availability and brand quality currently remains strong and alternate sources of products are expected to be available if needed. There was no negative impact to our third quarter performance. Before I close, I want to briefly touch on our operational and strategic review announced in September as part of our Board evolution and in-flight strategic planning process. We continue to make good progress on the internal work and are on track to provide an update in 2026 at an Investor Day as we previously disclosed. We're turning over all stones and asking hard questions as we analyze how to differentiate in an evolving landscape. This involves an assessment of both our operational plans and our business structure. We're excited about the value creation potential of Genuine Parts Company and looking forward to providing an update next year. In closing, as we look at our performance year-to-date, our results have been in line with our expectations despite less favorable market conditions versus our expectations to start the year. We're focused on what we can control and working to finish 2025 strong. Our operating discipline and actions to proactively manage the business in an inflationary environment have been appropriate, and our strategic initiatives and investments are making a positive difference in our ability to better serve customers. The near and long-term fundamentals of our markets are attractive, and we're well positioned to build on our momentum. Thank you to our shareholders, customers, owners and supplier partners for your continued trust and support. I want to reaffirm my sincere gratitude to our GPC teammates for your tireless effort and commitment to serving our customers. I'll now turn the call over to Bert.

Thanks, Will, and thanks to everyone for joining the call. Our third quarter results reflect continued discipline and strong execution while navigating weak market conditions, particularly in Europe, the tariff environment and a cautious customer. Against this backdrop, our third quarter performance was highlighted by mid-single-digit sales growth, double-digit adjusted EBITDA growth, twice the rate of our sales growth. EBITDA margin expansion in both segments and a return to earnings growth. In July, we shared that we expected third quarter earnings to increase 5% to 10%, and we finished the quarter with adjusted EPS of $1.98, up 5.3% to prior year due to stronger top line growth and our restructuring and cost actions, which are offsetting known headwinds from lower pension income and higher depreciation and interest expense. Those headwinds cumulatively totaled a $0.25 negative impact to earnings per share. As it relates to tariffs, our teams are continuing to manage the tariff environment, leveraging our capabilities and expertise through a dynamic landscape. For the third quarter, we experienced a low single-digit benefit to sales growth from tariffs and a low single-digit increase to cost of goods sold, in line with our expectations. The net impact of the tariffs on the quarter was a slight benefit to our results. Turning to our detailed results. My comments this morning around our third quarter performance and outlook will focus primarily on adjusted results, which exclude the nonrecurring costs related to our global restructuring program. During the third quarter, these costs totaled $67 million of pretax adjustments or $49 million after tax. With that, let's get into the quarterly results. Total GPC sales increased 4.9% in the third quarter, which included a 230 basis point improvement in comparable sales, a benefit from acquisitions of 180 basis points and a foreign currency tailwind of 70 basis points. We delivered sequential improvement in comparable sales growth at both U.S. Auto and Industrial, with Industrial comparable sales growing approximately 4% year-over-year despite PMI remaining in contractionary territory throughout the quarter. For the quarter, our gross margin was 37.4%, an increase of 60 basis points from last year. The improvement in our gross margin was primarily driven by the ongoing execution of our strategic sourcing and pricing initiatives. As expected, the benefit to gross margin expansion from acquisitions in the quarter was more muted as we have now cycled the 1-year anniversary of both the MPEC and Walker transactions. Turning to our costs. Our SG&A as a percentage of sales for the third quarter was 28.8%, flat versus the prior year and demonstrates continued improvement in the rate of deleverage across the business through the course of 2025. On an adjusted basis, SG&A grew year-over-year in absolute dollars by $88 million, driven by a few key factors. First, approximately $40 million in SG&A growth from acquisitions, however, our acquisitions continue to have a positive impact to net operating profit margin. Second, approximately $45 million or 2.7% growth in core SG&A. The growth of our core SG&A continues to be primarily due to inflation-driven increases in salaries and wages and rent. The growth of our core SG&A was mitigated by a $36 million benefit in the quarter related to our restructuring and cost initiatives as they work to mitigate cost inflation. For the quarter, total adjusted EBITDA margin was 8.4%, up 40 basis points year-over-year. Both our Automotive and Industrial segments expanded EBITDA margins for the quarter as sales growth, gross margin expansion and the benefits of our restructuring program more than offset core SG&A inflation. Turning to our cash flows. For the first 9 months of 2025, we generated approximately $510 million in cash from operations and $160 million of free cash flow. Our year-to-date operating cash flow in 2025 has been impacted by a few key factors: lower year-over-year earnings of approximately $100 million, accelerated tax payments of $90 million and higher interest payments of $50 million. The remaining year-over-year decrease is driven by working capital changes associated with the commercial activity that was occurring in the first half of 2024, in connection with inventory investments made at NAPA. This activity and the associated build of accounts payable and receipt of supplier incentives did not repeat in 2025, creating a tough year-over-year comparison. This headwind was concentrated in the first half of the year and our cash generation accelerated in the third quarter. In 2025, we have invested approximately $350 million in CapEx as we continue to invest to modernize our supply chain and create a better customer experience with our investments in IT. Our investments in supply chain modernization with our new DCs and our international businesses, alongside enhancements to our search and catalog capabilities, are driving enhanced productivity and returns. We have also invested $182 million year-to-date in the form of strategic acquisitions, and we are excited about the continued expansion of our market-leading business in Canada with the Benson acquisition. We continue to make good progress on our long-term strategic investments to properly grow our business with discipline and a strong focus on returns from these investments. And finally, through the first 9 months of 2025, we've returned $421 million to our shareholders through our dividend. Now turning to our outlook. As we detailed in our press release this morning, we are updating our outlook for 2025. 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 $6.80, and our adjusted diluted earnings per share to be in the range of $7.50 to $7.75, narrowing our outlook from our previous range of $7.50 to $8. While we delivered third quarter results that were in line with our expectations, market conditions through the third quarter did not improve. The narrowing of our guidance range is based on our expectation that current market conditions persist for the remainder of 2025 and remain relatively consistent with what we experienced in the third quarter. With respect to the full year, our outlook for 2025 includes the expected year-over-year headwinds from a loss of pension income as well as higher depreciation and interest expense. Collectively, these headwinds produce approximately $1 of EPS headwind in 2025 when compared to 2024. Our outlook also assumes foreign currency rates at current levels. In addition, as we've previously communicated, our outlook for GAAP diluted earnings per share currently excludes the charge we now expect to record in the fourth quarter with the termination of our U.S. pension plan. The one-time noncash charge that would be recognized at settlement will be equal to the accumulated actuarial losses recorded on our balance sheet, which we currently estimate to be in a range of $650 million to $750 million. There are multiple variables that impact the charge, which will be finalized on or before December 31, 2025. As a reminder, our U.S. pension plan is overfunded and terminating the plan has been a long-term de-risking strategy to further strengthen our balance sheet. We will share the final details when we report our fourth quarter earnings in February. Let me share a few additional considerations to frame our outlook. Our updated revenue guidance assumes total GPC sales growth in the range of 3% to 4% for 2025, up from our previous outlook of 1% to 3%. We are raising our outlook given our year-to-date results and recent momentum. By business segment, we are now guiding to the following: total sales growth of approximately 4% to 5% for the Automotive segment and total sales growth of approximately 2% to 3% for the Industrial segment. These updates reflect our expectations for continued solid revenue growth in the fourth quarter. In addition, in the fourth quarter, we expect to continue to expand gross margin. However, the rate of our margin expansion will moderate as expected as we've move past the anniversary of our acquisitions in the U.S. NAPA business. We expect SG&A leverage in the fourth quarter building on the improvement we've experienced sequentially through 2025, driven by our ongoing cost and restructuring actions. For 2025, we expect to incur restructuring expenses in the range of $180 million to $210 million and an expected benefit of $110 million to $135 million. When fully annualized in 2026, we expect our 2024 and 2025 restructuring efforts and cost actions to deliver over $200 million of cost savings. We remain on track to deliver our targeted benefits. Our outlook also includes expected interest expense of approximately $160 million in 2025. Collectively, these factors lead to our expectations for continued earnings growth in the fourth quarter. As we progress through the quarter, we will continue to watch the fluid tariff environment, customer sentiment, industrial demand activity and overall market conditions, particularly in Europe. Lastly, we expect to generate cash from operations in a range of $1.1 billion to $1.3 billion, and free cash flow of $700 million to $900 million. With the narrowing of our outlook range around earnings, we would anticipate being at the lower end of these ranges. In closing, the external environment remains dynamic, marked by a fluid tariff landscape, heightened cost inflation, stagnant market conditions and a cautious customer. As we look to finish 2025 strong, our focus remains on operating with agility and discipline while consistently delivering excellent service to our customers around the world. We remain confident in the supportive underlying fundamentals of our businesses and the strategic investments supporting our long-term growth. Thank you, and we will now turn it back to the operator for your questions.

Our first question comes from Greg Melich with Evercore.

I wanted to start where you ended, Bert, discussing the fundamentals in the business in the fourth quarter guide. Aside from the impact of business acquisitions, is there anything else affecting gross margins being lower in the fourth quarter, such as the timing of tariff pass-throughs or vendor rebates?

Greg, I would say no. There's no other uniqueness to the gross margin expansion in the fourth quarter and the guide. It's really about just the continued great work we're doing on sourcing and pricing. And as you mentioned, the lapping of the acquisition benefit as we've gotten past the anniversary of the big U.S. auto acquisitions last year.

Got it. I would like to know what you see as the key advantages of having the businesses integrated now that we've had the Board changes. Do you believe this will evolve over time? Is there still a compelling reason to keep them together as you consider the long-term outlook?

Yes, Greg, thank you for the question. We've experienced significant benefits over the past 3 to 4 years from our collaboration. As I mentioned previously, upon reviewing our investments and the strategies related to our initiatives, we've found them to be very consistent. The benefits we've seen from our work in the last 3 to 4 years reflect an acceleration where the collective impact is greater than the individual contributions. This includes areas like sales effectiveness, technology investment, and supply chain improvements, all thanks to our unified team approach. As noted in my opening remarks, our annual strategic planning process allows us to assess all initiatives, evaluate their effectiveness, identify areas for improvement, and outline our future direction. This is a standard process we undergo each year. Recently, my entire executive team and others participated in an off-site meeting earlier this summer. We engaged in productive discussions, asked challenging questions, and considered our capital allocation strategies. It's a robust and constructive process. As I mentioned earlier, we will provide an update next year once we conclude our work.

And your next question comes from the line of Chris Horvers with JPMorgan.

It's Christian Carlino on for Chris. Can you discuss the same-SKU inflation in U.S. NAPA? How are you approaching incremental pricing for both U.S. NAPA and Motion over the next few quarters? When do you expect the full impact of tariffs to be reflected in sales? What level of inflation do you anticipate it reaching?

Yes, Christian, as we consider the overall inflation trajectory, we believe we are on track as we wrap up the third quarter. We began to see the effects of tariffs accumulate in the early part of the third quarter, and this has continued to progress towards the end of the quarter. The stabilization we've experienced is a key reason for our upward adjustment in the revenue forecast. I would estimate the benefit to U.S. automotive is around 2.5 percent, possibly slightly higher for the Motion segment. We anticipate that, as mentioned in our prepared remarks, this will remain consistent for the rest of the year, with low-single digit impacts on both revenue and cost of goods sold. The third quarter had a net positive effect, and we expect a minor net benefit into the fourth quarter as well. Looking ahead, assuming stability and no significant changes from the fluid environment in China, we expect to finish the year in this manner. It would be advantageous for all if we enter 2026 with clearer insights on this matter, which could help restore confidence among our customers.

Got it. That's really helpful. And as you think about the right structure for GPC, how would you characterize any dissynergies if the 2 businesses operated separately both from a purchasing standpoint as well as shared corporate costs and any other explicit details you can put around that?

Yes, Christian, it's probably a little hypothetical to think about the split of the company and dissynergies and things like that. I'll build on Will's point. We have done a nice job in the last several years of leaning into one GPC, and we don't really think about it through the prism of allocating corporate to different segments or breaking things up at this moment. As Will said, when we think about where we've benefited, procurement is a place where we've been able to leverage capability, both direct procurement and indirect procurement. And that's just being smart, quite frankly. We have a big business. We have a powerful portfolio of spend, and we can come out and be smart about how we do that and work really closely with our suppliers and our customers on that front to find the right balance. The other thing I would tell you is that with Naveen coming in a few years ago, we've really made meaningful strides in the investment in technology. I'll start with our Poland tech center, which is celebrating their 3-year anniversary. The work we're doing in Krakow to benefit the entirety of the business is pretty spectacular. We're doing it at a high, high rate of quality and with great productivity. And these are initiatives that benefit everyone. So we're doing it one time rather than perhaps historical ways of doing it multiple times. And when you think about how that translates, there's a benefit to the entire business of doing it that way. And that cascades into every dimension of our investment profile. When we think about the automation of a DC, we're leveraging capabilities globally and thinking about how to do that smart and using our learnings and expertise to follow the best technology of the moment. And now as we've turned our attention to the transformation and work we're doing in the U.S. automotive business, we're seeing that cascade through with the 2 new DCs we're building this year in NAPA.

And your next question comes from the line of Jordan with Jefferies.

When you think about the factoring programs and obviously, the First Brands' issue, have you seen any either increased risk spread pricing from the banks or any less willingness to participate on the payables model?

No. I'll say it no, and then I'll give you a little bit more color on it. Look, we see the First Brands' situation with respect to supply chain financing really isolated to First Brands. Those programs have been around for some time, and they've been through periods of disruption, broader disruption like COVID and have remained strong. So our current view is that the programs are continuing to function normally across all of our other supplier partners. Our program is designed well. Our size and scale makes us an attractive partner for our suppliers. And we've got a great group of banking partners that help us work with the suppliers, 5 big platforms. And our utilization, while down year-to-date, really on the back of lower inventory replenishment, we don't see anything unusual. First Brands has been suspended in our programs, which you would expect. I can't speak to the others more broadly, but that's true for us globally. But we feel good about the program overall and wouldn't call any question into the health of it more broadly for the automotive aftermarket in the industry.

Bret, I would just add another couple of thoughts, which is, we are coordinated as a global team. We're operating with a high level of coordination around the world. As I said in my prepared remarks, the commercial relationship with First Brands continues to be solid. Fill rates are high, and we're in active discussions. So we're cautiously optimistic that we're going to continue to build a path to resolution on this one.

Great. And then I think you commented that your sellout from independents and your company comp was a plus 3-ish. So maybe a little bit less inventory at the independents. And you mentioned that you were sort of helping them along the path of better in-stocks. Could you give us maybe a bit more color as to how you're helping the independents and sort of what level of inventory are you seeing them at versus where you target them being?

Yes, Bret. We're constantly working with the owners. I think you've summarized the facts appropriately, which is we're really pleased with what we're seeing selling out into the market. We've talked a lot about over the last couple of years, the work that we've been doing with independent owners and our own stores for that matter to make sure that we've got the right inventory in the right place at the right time. They're pretty individualized discussions with owners, so it depends on the needs of the independent owner, whether it's helping them thinking about pricing, helping them thinking about cash flow management, helping them think about product assortment. So those are super granular by local market by size and scale of owners. So those are the discussions that we're having owner by owner, and we're really pleased with the types of discussions that we're having and the momentum that we built through the course of the year.

Should we expect the sell-in to accelerate in the fourth quarter considering that they appear to have sold more in the third quarter than they received?

Bret, I wouldn't assume that they're going to accelerate in the fourth quarter. We expected them to start to accelerate a bit more than they did in the third quarter. We're pleased with the improvement. However, for the fourth quarter, we anticipate that things will remain fairly consistent with Q3 in terms of their behavior. One significant factor affecting the independent owners is the high interest rates. If we see some relief in that area, it could contribute to a bit of acceleration. As Will mentioned, it's very individualized, and they are managing their cash flows tightly and being cautious with their working capital. Consequently, they tend to make replenishment decisions with that perspective in mind. I believe that might help us gain a clearer understanding of the independent owners as we move through the rest of the year.

And your next question comes from the line of Scot Ciccarelli with Truist Securities.

So with the independents continuing to work down their inventory levels and just given what we know the typical dynamics of the industry are, do we think that the independents have been losing market share? And like is there a way to potentially quantify that?

Yes, Scot, I wouldn't say they're reducing their inventory levels. They have been mindful, like all of us, about managing their inventory. This doesn't imply they lack the resources to compete. Therefore, I wouldn't conclude that independent owners are losing market share. I believe all our initiatives in both company-owned and independent stores are achieving their intended results. We have been consistent in our efforts, whether it involves assortment planning or ensuring inventory operational excellence. I would say the partnership with independent owners is as strong as it has been in a long time. We need to stay focused and continue supporting them in a challenging market, but I feel positive about the work we are doing with the owners and their competitive stance in the market.

Okay. Maybe I'll take a little different angle on this one then. Maybe a bit of a follow-up to Bret's question as well. Is there a point in your estimation where the independents have to start building back up their inventory levels from where they are currently?

I would say it depends, but on the margin, yes, could we have them buying more inventory? The answer is yes.

Yes. I would just add that inventory availability is a daily focus for us, and there is always room for improvement, whether it involves independently-owned stores or company-owned stores. We have more control over the performance of our company-owned stores, and the 4% year-over-year improvement reflects the hard work we're putting into the business. We're applying the same effort with independent owners, evident in their sequential performance improvement for the quarter. We believe there is always potential for us to do better, and improving inventory availability isn't solely related to independent owners. As mentioned, our partnership with them has never been stronger, and the opportunities ahead are significant. While they are currently cautious, one area where they could replenish faster relates to interest rates. Anything we can do to assist them regarding interest rates, in addition to our existing support, would be beneficial for them.

And Scot, maybe just to summarize it with a simple sentence. I mean, our inventory positions, whether it's company-owned stores or with independent owners is not a reason for underperformance. Our inventory levels have never been healthier in the aggregate. So we're in a great spot. We're competing effectively, and we're going to continue to keep our head down.

And your next question comes from the line of Michael Lasser with UBS.

You mentioned you expect the run rate for inflation to remain in this range of, call it, 2% to 3%. Others in the industry have suggested that inflationary impact could peak as soon as the first quarter of next year, and that could be within the mid- to high-single-digit impact range. So what is different about GPC that it's not experiencing as much inflation? And presumably, it's not because you are not passing along the price increases, so we shouldn't expect price gaps to widen or anything of that nature?

Yes. As we consider the tariff situation, our main focus is collaborating with our suppliers to minimize disruptions for our customers. This involves carefully balancing cost and price increases, which we are approaching thoughtfully while gauging market acceptance. So far, the market seems to have accepted price increases consistently. Our strategy aligns with others in the industry, whether it's in our Industrial or Automotive sectors. We aim to pass along what we can, and our break-fix model supports this. We believe the current situation is rational. We are seeing a modest benefit this quarter, which we anticipate will continue into the fourth quarter. While our numbers may vary slightly from others due to differing exposures to China and company sizes, we have the flexibility to work closely with our customers. In the third quarter, we observed a low single-digit benefit to our top line, which we expect to see again in the fourth quarter. We also noted a low single-digit increase in the cost of goods sold, which is likely to persist in the fourth quarter. This remains a dynamic area, and we will monitor it closely, but we feel confident in how we are managing it.

My follow-up question is about the outlook for the fourth quarter and how it should influence our perspective on 2026. You've raised the upper end of your sales forecast but lowered the midpoint of your earnings forecast. It seems you aimed to align with consensus for the fourth quarter. So, how should we interpret the profitability outlook for this quarter? Additionally, how should this inform our view of Genuine Parts' margin structure for next year? If the company maintains its current sales growth rate, can we expect a similar level of margin expansion or leverage on your SG&A as suggested for the fourth quarter, considering you have a one-time advantage this quarter?

That was a very long question, Michael. I might have to charge the...

I tend to be long-winded, Bert.

I'm starting with a straightforward comment about the fourth quarter. We expect it to be a solid quarter. I want to share my perspective on the guidance. We narrowed the range, and I'd like to refer back to our outlook at the beginning of the year, which anticipated a more muted first half followed by a recovery gaining momentum through Q3 and Q4. To be transparent, as I mentioned in my prepared remarks, we did not see that occur in the third quarter. Consequently, we don't expect an improvement in market conditions for the rest of 2025, despite our third quarter performance aligning with our expectations. This muted recovery we anticipated for the year is what led us to narrow our range, rather than a more favorable trading environment and stronger underlying demand that would have contributed to a more optimistic EPS outlook. With one quarter remaining and three already completed, we thought it was important to provide insights into how we view the fourth quarter in terms of revenue and EPS trends. While I don't provide quarterly guidance, we plan to build on the momentum from the third quarter for fourth quarter revenue. We expect sequential growth in NAPA, consistent growth at Motion, and a stabilized tariff landscape, which is why we've included some anticipated benefits from tariffs in our revenue expectations for the rest of the year. We're closely monitoring the European market conditions as a critical factor. Regarding gross margin expansion, in response to Greg's earlier question, we expect it to moderate in the fourth quarter compared to the third quarter since we are lapping the benefits from previous acquisitions. We're also facing higher costs of goods sold due to tariffs, which will be a factor in the fourth quarter. On SG&A, while we continue to experience cost inflation, we've made significant improvements to our cost structure over the past two years and will keep focusing on it. We expect some leverage in the fourth quarter from our efforts. Overall, we anticipate earnings growth in the fourth quarter as we balance solid revenue growth, moderated gross margin, SG&A leverage, and the momentum we've seen in the third quarter. However, we did factor in slightly increased interest expenses for Q4 based on year-end trends. All these factors contribute to the EPS range we've shared today. The upside we previously anticipated was based on expectations for a more favorable trading environment earlier in the year.

And just to clarify, how should the fourth quarter implied expectation inform how we should think about 2026?

Well, look, I don't want to get out in front of my skis on giving you guidance on 2026. As Will mentioned, we had a lot of work we're doing here. This is also our business planning process season for 2026. I think the great work we've done on SG&A will continue to show through as we look into next year. Obviously, I think we'll continue to have gross margin expansion as we look ahead because we're doing such great work in that space, and we have opportunities across the board, across the business. Look, I don't want to get into market conditions or top line forecast for 2026. As I think about how 2026 could set up, I think we're in a bit of a similar dynamic to a year ago. Everyone was waiting on the outcome of an election, we got election resolution and clarity and we started the year 2025 with, I think, a bit more optimistic outlook. You saw that just as an example, with PMI starting the year above 50%. I think as we find ourselves at the end of 2025, we sit in a similar place. There's a lot of folks sitting on the sidelines, not around an election, but more around what's going to happen with interest rates and how do we get some kind of good clear rules of engagement on tariffs. If we got that in the fourth quarter, I think you could see a trading environment in 2026 that would be a little bit more robust. Obviously, Europe would continue to be a watch point. So we'll be thinking about that. So those are a few of the broad strokes that we're thinking about as we move through our business planning process and set up for 2026. The other watch point I would give you is cost inflation and SG&A. It's been persistent, and we'll want to take a really hard look at that. So that's about the highest level of color and detail I can give you, Michael, on 2026 without getting too specific and getting out in front of the good work we need to do here in the fourth quarter to give you an informed guide on the full year '26. But I would just say this, I mean, we've got a lot of good momentum in the business. We delivered a solid third quarter, and we've shown earnings growth for the first time in a while, and we're going to continue to be focused on that as a leadership team.

Your next question comes from the line of Kate McShane with Goldman Sachs.

This is Mark Jordan on for Kate McShane. You touched on it a little bit there, but maybe can you talk about what you're seeing for inflationary cost increases in terms of salaries, wages and rent? And what the magnitude of the pressure is there and maybe what the company is doing to try and offset those headwinds?

Yes. Look, I think the magnitude of the kind of increase in inflation lives in that 3-ish percent range in the aggregate. I would say the inflation in rent is probably a little higher right now than it is in wages. Wages probably lives into 3% to 5%. Rent probably lives a little higher than that just because most of the lease renewals we're feeling right now are being renewed for the first time outside of the COVID period in which, obviously, leasing rates and rent renewals were depressed. And so there's a bit higher pressure there. I think in terms of what we're doing, it's everything we've talked about, and you see that here in the third quarter. We've taken, as a leadership team, a tremendous amount of actions across the business in 2024 double down in 2025 because with the cost inflation and SG&A being persistent, that means we have to work smarter. And that means we have to invest in productivity and operational efficiencies to offset that headwind. And we've done that. You've seen that here in Q3 with a flat SG&A as a percentage of revenue year-over-year, which is a massive improvement from Q1 and Q2. And so we're proud of that work. It's largely offsetting that headwind, and you see that with an overall core SG&A growth of 2.7% against the top line of 5%, which I think is allowing us to get some leverage on EBITDA in the business. So we're going to continue the hard work. We've got to keep our head down. We've got to keep grinding. And I think that work that we've done is the reason why you're going to see a bit of SG&A leverage in the fourth quarter as we work to continue to offset some of these other headwinds in the business.

Perfect. And then just changing the subject real quick to the U.S. NAPA business. Retail, of course, a smaller portion of your sales, but are you seeing any signs of changing customer behavior there?

We haven't seen any changing customer behavior, I would say. That part of the business continues to be pressured. It's more discretionary in nature. And as you noted, it's not a big part of our business. It sequentially improved, but it's still pressured. So no material changes in behavior or trading down or the like, but continue to be pressured.

And your next question comes from the line of Chris Dankert with Loop Capital Markets.

I guess I wanted to talk about the supply chain investment in NAPA, specifically thinking about the Nashville DC investment there, more efficient picking and shipping. Anything you can share with us in terms of kind of quantifying the improved customer service levels or maybe the subsequent sales growth in the region following that investment?

Yes, Chris, happy to. I wouldn't isolate it just to a Nashville example. We've seen benefits from our supply chain investments when we make building improvements. And it's everything that you described. It's kind of the productivity of the building itself. It's the service level to the customer. As a result, it's a function and drives better growth in the local market. I can think of one building in Canada that we've made recent investments, and they've got double-digit growth in the market post investment. And so that's kind of the marker that we set. You want to see significantly better growth, better coverage, better inventory flows, better safety, better productivity. So Nashville is one of many examples where we've seen really nice success as a result of our investments in the supply chain.

Got you. Now, shifting to the Motion business, it's encouraging to hear about the backlog growth. Can you share any insights on how you expect the OEM segment to trend? It seems like you're anticipating some level of acceleration there, so any additional details would be appreciated.

Yes. I think we're cautiously optimistic. We obviously have been cautiously optimistic about this part of the business for some period of time. And so we're ever hopeful that we're closer to the bottom than not. As I said in the prepared remarks, the large order book of business is sequentially improving. As you noted, that's largely OEM-based business. I think Bert made an interesting and appropriate comment about coming into the end of the year and feeling better about the world and turning the calendar and feeling like '26 has more clarity, whether it's rates or the industrial complex or the like. So the conversations with customers, as I said last quarter, they're generally constructive, but they're cautious. And so there's work out there to be done, and we're just slowly working through the bottom part of this phase in the market and feel good about where we're headed into the fourth quarter and into 2026.

And we have no further questions at this time. I would like to turn it back to Will Stengel for closing remarks.

Thanks again, everybody, for your interest in Genuine Parts Company. We look forward to giving everybody an update on our February call. Have a great day, and thanks again.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.