Genuine Parts Company (GPC) Q4 2025 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Genuine Parts Company Fourth Quarter 2025 Earnings Conference Call. Note that today's call is being recorded. [Operator Instructions] 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 Fourth Quarter 2025 Earnings Call. Joining us on the call today are Will Stengel, Chair-Elect 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, February 17, 2026. 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 fourth quarter and full year 2025 earnings call. Before we start, as always, I want to thank our 65,000 global teammates for their efforts in serving our customers. Our employees are at the core of our success as they work every day to deliver solutions and service to our customers. Our 2025 achievements are a result of their hard work and dedication. We shared a significant and exciting update for Genuine Parts Company this morning: our intent to separate into 2 independent publicly traded companies, our Automotive businesses will continue to be the largest global automotive aftermarket replacement parts and solutions provider in the world, and our Global Industrial businesses will create a stand-alone best-in-class industrial solutions platform. I'll start this morning by sharing additional perspective on the announcement and then discuss our full year performance. Bert will discuss the financial results for the fourth quarter, trends to start the year and our 2026 outlook before we open it up for questions. For nearly a century, Genuine Parts Company has a proud history of leadership and driving change in its industries, always focused on serving our customers and taking action to strengthen the business as markets evolve. Over the last decade, we have established leading global footprints in attractive geographies, simplified our business mix and accelerated strategic investments to further advance and differentiate our business. More recently, despite dynamic markets, we have focused on a broad-based supply chain and technology transformation effort, and we have simultaneously invested in talent and capabilities across the company. We've complemented our work with significant acquisition activity to add scale and local service in our priority markets. We've leveraged a global team approach to evolve the business and increase the intrinsic value of the company. As we shared last September, throughout 2025, we performed a comprehensive strategic and operational review of the business with the objective to understand how best to unlock our full potential and maximize shareholder value. Our work, in partnership with our advisers, included an assessment of our business structure, operational and strategic growth opportunities and corresponding capital allocation priorities. Following the detailed review, we have concluded that separating our Global Automotive and Global Industrial businesses is the best path forward for the company, our people, our customers and our shareholders. Today, we have 2 scaled market-leading companies with compelling but different growth strategies. This new business structure will enable each to capture the opportunities most effectively. We believe that separating automotive and industrial into 2 public companies will set both up for significant long-term growth. The transaction provides clarity in many important ways. Each company will be more agile and more focused. Each will have tailored strategies with business-specific investments that are directly aligned to their respective customers and market needs. Each will be well capitalized and have greater financial flexibility with specific capital allocation strategies. And each will be easier for investors to appreciate and understand with clear, differentiated value propositions. Global Automotive, with its globally recognized NAPA brand, will be a pure-play automotive aftermarket replacement parts and solutions provider. The separation will allow Global Automotive to more effectively capitalize on common automotive customer needs and market trends, particularly with the growing commercial customer. Its geographic diversity creates a balanced and global platform with identified market share opportunities. NAPA's unmatched loyalty built on trusted product quality, deep relationships and a vast global network will continue to be core differentiators as it competes in an over $200 billion addressable market that's nondiscretionary in nature. There are more than 550 million used cars on the road in the markets we serve, with an average age of more than 12 years, which creates compelling opportunities. Our Global Automotive business is currently executing a transformation program to deliver growth in excess of the market and margin expansion, while optimizing working capital and increasing return on invested capital. These will remain hallmarks of the business on a stand-alone basis. Significant progress has already been made in each geography with investments deployed and capability building. Regarding its capital structure, the business is targeting to maintain an investment-grade credit rating, and will have a balanced capital allocation program to support the strategic vision, including organic investment, accretive bolt-on acquisitions and returns to shareholders. Turning to Global Industrial. Motion is a leading diversified industrial distributor, serving over 180,000 customers across a diverse group of end markets. At approximately 2x the size of its next competitor, we have the largest offering of mission-critical, industrial maintenance and repair parts, and value-added solutions to keep manufacturing facilities operating and efficient. We differentiate with a technical product and industry expertise and go to market with a unique omnichannel sales strategy that leverages deep, long-standing supplier and customer relationships. Motion operates in a highly fragmented $150 billion global market with defined commercial and operational initiatives to extend its industry-leading position. Motion will build on its best-in-class financial performance by delivering profitable sales growth, operating leverage that translates into improving double-digit EBITDA margins, strong free cash flow generation and attractive returns on invested capital. Motion is targeting to maintain an investment-grade rating and with strong cash flow characteristics and the backing of a dedicated balance sheet, will be well positioned to make strategic growth investments. Motion will continue to pursue strategic and bolt-on acquisitions to add to priority product, market and solutions expertise. The Automotive and Industrial businesses already operate independently. There are no shared customer-facing roles and there are limited shared facilities. There's an ongoing body of work to finalize all the separation details and there are a select number of IT, sourcing and back-office support functions that we will manage and transition. The initial estimates of the dis-synergy costs associated with the separation are manageable, and we will share more information as we finalize our estimates. The separation is planned to be tax-free to GPC shareholders. We'll provide further updates on leadership and governance, stand-alone financial profiles and long-range targets, capital structure, capital allocation strategies and other separation matters as we move through our process. We're working at pace and targeting to complete the separation in the first quarter of 2027, subject to customary approval processes. We contemplate holding Investor Days for each business in the second half of 2026, and we look forward to sharing more about the exciting vision for these 2 companies as we progress. With that, as we reflect on 2025, it was a dynamic year across the businesses and geographies marked by tariffs, global trade policies, interest rates and a cautious consumer. To start the year, we built plans that assume sequential market improvement as the year progressed. Despite the environment realities, we advanced our strategy and delivered growth, expanded gross margins, took proactive action to offset cost inflation and continued to invest in strategic capabilities. A few highlights from the year include total GPC sales were $24.3 billion, an increase of over $800 million or 3.5% compared to 2024. Gross margin expansion for the third consecutive year, driven by pricing, sourcing and acquisitions. Global restructuring initiatives and cost actions, which provided an approximately $175 million benefit in 2025, above our expected range of $110 million to $135 million. And investments of approximately $470 million across our businesses, primarily in supply chain and technology. In addition to the investments in our business, we returned over $560 million to our shareholders in the form of dividends. This morning, our Board approved a 3.2% increase to our dividend, which marks the 70th consecutive year GPC has increased the dividend. While we have many accomplishments in 2025, our full year results came in below our expectations, largely driven by weaker-than-forecasted sales performance in the fourth quarter, which impacted profit. Of note, despite our overall sales growth in the quarter, we saw weakening of market conditions in Europe and sales below our internal forecasts for U.S. independent owners. There was sequential improvement through the year across many areas of the business that are encouraging. And in 2026, we've started strong, and we'll look to build on that momentum as we progress. Bert will provide more commentary. Before we touch on our results by business segment, you'll see in this morning's earnings release that we made a change in the way that we report our Global Automotive business. We made this change to provide increased transparency and better align with how we manage the business. We're now reporting 3 business segments: North America Automotive, which contains our automotive businesses in the U.S. and Canada; International Automotive, which contains our automotive businesses in Europe and Australasia; and Industrial. There are no changes to how we report Industrial, which, as a reminder, is predominantly North America. Now turning to our full year results by business segment. During the year, total sales for Industrial were $8.9 billion, an increase of $200 million or up approximately 2% versus the same period in the prior year, with comparable sales up 1.5%. Recall that in the first quarter of 2025, the U.S. had one less selling day, which impacted sales by 40 basis points. We believe our Industrial business grew in excess of the market in 2025 despite a sluggish industrial and manufacturing economy, as evidenced by PMI being below 50 for the last 10 months of the year. This performance reflects Motion's diverse end markets, extensive product offering and strong execution focused on customer service via technical and solution-based selling. Looking at the performance across our end markets, we saw growth in 7 of our 14 end markets during the year, which is up from 4 in 2024. We saw notable improvement within one of our largest end markets, equipment and machinery, and growth in food products, pulp and paper, aggregate and cement, and fabricated metals amongst others. This growth was partially offset by softer demand in automotive, lumber and wood, and oil and gas. Each value-add solutions segment, such as automation, conveyance and repair services saw improvement throughout 2025. Our core MRO business, which accounts for approximately 80% of Motion sales, was up over 3% during the year, with shared strength in both our local account and corporate account customers. We have seen an increase in planned outage projects as we closed the year, where customers stop operations to do maintenance and repair work as deferred maintenance needs are starting to be addressed. In the fourth quarter, we were also encouraged with the outsized strength with small- and medium-sized customers, driven by targeted second half sales initiatives. The remaining 20% of Motion sales, which originates from more capital-intensive projects, was up approximately 1% during the year as customers continue to selectively pursue larger projects. E-commerce had another strong growth year in 2025 with penetration as a percent of total sales up over 800 basis points to approximately 45%, as we continue to integrate more closely with our customers via technology. While one month doesn't make a trend, we're also encouraged to see January PMI above 50 for the first time since February 2025. Industrial segment EBITDA in 2025 was approximately $1.1 billion and 12.9% of sales, representing a 30 basis point increase from the same period last year. The Motion team showed outstanding operational discipline during the year as they navigated tariffs, managed a soft demand environment and offset pressure from cost inflation. Driving operating leverage on low single-digit growth is great execution. Motion's organization and cost structure is set up nicely for the rebound in industrial demand, and we expect to see strong operating leverage as the market improves. Turning to our Automotive segments. Starting with North America Automotive, total sales for the year increased approximately 3%, with comparable sales growth up approximately 0.5%. In 2025, North America Automotive segment EBITDA was $672 million, which was 7.1% of sales, representing a 70 basis point decrease from the same period last year. The decrease year-over-year reflects ongoing pressures from cost inflation and higher salaries and wages, health care, rents and freight, which was partially offset by our restructuring initiatives and cost actions. Within North America, total sales in the U.S. were up approximately 4% for the year, with comparable sales up approximately 0.5%. Reminder that in the first quarter, the U.S. had one less selling day, which impacted sales by 40 basis points in 2025. We saw strong sales growth from our company-owned stores with comparable sales up approximately 2.5% for the full year and approximately 4% in the second half. Independent purchases during the year were down approximately 1%. We remain pleased with our progress on running better company-owned stores and the sequential improvement throughout the year. Looking at the comparable sales performance of NAPA to the end customer, which includes our company-owned sales as well as the sales out to the end customer from our independent stores, the NAPA system delivered sales growth of approximately 1% for the full year and approximately 2% in the second half. By customer type, comparable sales to our commercial customers for the year were up approximately 2%, while sales to our retail customers decreased approximately 4%. We saw the strongest growth with our AutoCare and major account customers, which were up mid-single digits. Across our product categories, during the year, we saw solid growth in our nondiscretionary repair and maintenance and service categories, which were both up low to mid-single digits. As a reminder, combined, these categories account for approximately 85% of our U.S. Automotive business. Discretionary categories remained softer and were flat to slightly positive for the year, with specific category initiatives in our tool and equipment offering helping to offset some of the weakness. Our value and service proposition were key to our success in winning business during the year despite the tariff-driven inflation environment. Customers continue to use discretion and are looking for value. However, deferred maintenance will ultimately need to be addressed as you can only defer for so long. Lastly, in 2025, we further advanced our acquisition strategy in our U.S. Automotive business to continue to strengthen our relative footprint in strategic priority markets by acquiring over 100 locations from both independent owners and competitors. Additionally, in October, we closed on the acquisition of Benson Auto Parts, one of the largest independent aftermarket players in Canada. Looking at our performance in Canada, our team had a strong year with total sales increasing nearly 5% in local currency versus the same period last year, with comparable sales increasing approximately 3%. We believe our business grew in excess of the market in 2025 and we're proud of the team's execution throughout the year to deliver solid results. Moving to our International Automotive business. Total sales during the year increased approximately 5% with comparable sales up slightly. International Automotive segment EBITDA for the year was $544 million, which was 9.3% of sales and represents a 90 basis point decrease from the same period last year. Similar to North America, the decrease year-over-year reflects ongoing inflation cost pressures from higher salaries and wages, health care, rent and freight, which was partially offset by our restructuring and cost actions. By geography, in Europe, total sales for the year increased slightly in local currency with comparable sales down approximately 2%. These results were below our expectations due to moderated market conditions across our geographies in the second half of the year. Through the year, we took aggressive actions in Europe to align the business with market realities. For example, we closed underperforming locations, consolidated distribution centers, reduced head count, and reduced general and administrative costs. Despite a challenging environment, we believe we performed in line or better than the market in 2025, driven by strength with key account customers, the continued expansion of the NAPA brand, sourcing initiatives and accretive bolt-on acquisitions. The difficult work completed in 2025 will position the business well as the market recovers. Finally, our team in Asia Pacific had another strong year in 2025 and further distanced themselves as the market leader. Our team delivered double-digit growth in local currency, driven by both organic initiatives and contributions from acquisitions. Total sales increased approximately 10% during the year with comparable sales up approximately 5%. Both trade and retail businesses posted strong results for the year with standout performance in retail relative to the competition. The 2-wheel division also had an exceptional year in 2025, growing sales 20% versus 2024 as it continued its multiyear track record of impressive accretive growth. Our in-flight initiatives are working as designed and the local team is energized to build on the strong momentum in 2026. Before I close, I want to provide a quick update on First Brands Group. Following their bankruptcy filing, our teams quickly mobilized plans to ensure operational and service continuity. As the situation evolved, we methodically executed the plans with alternative suppliers. Thanks to the readiness, we do not expect any operational and product disruption in 2026. Bert will share additional comments on the accounting implications of the bankruptcy in his remarks. In closing, thank you to our customers, owners, supplier partners and shareholders for your continued trust and support. This is an exciting time for Genuine Parts Company as we're proactively pursuing a strategy to unlock value and position each business and geography for long-term success. Today we have 2 leading distribution platforms in attractive industries with defined plans to capture exciting opportunities. The clarity this transaction provides will accelerate our ability to deliver performance and extend our leadership positions in our industries for years to come. I want to reaffirm my sincere thanks to our GPC teammates for your effort and commitment this year. While the announcement today represents a change in how we plan to structure the business, it's business as usual in 2026 as we navigate the market and focus on doing what we've done for a long time: take care of our customers and teammates every day. Thanks for all you do for Genuine Parts Company. I'll now turn the call over to Bert.

Thanks, Will, and thanks to everyone for joining the call. We closed 2025 with fourth quarter sales growth of 4% and adjusted gross margin expansion of 70 basis points. Our sales performance was highlighted by a near 5% increase in sales within Industrial as well as strength in our U.S. NAPA company-owned stores with approximately 4% comparable sales growth in the quarter. Despite these tailwinds, our fourth quarter adjusted earnings of $1.55 were below prior year as the benefit from higher sales and gross margin expansion was offset by our previously communicated headwinds from depreciation and interest expense and lost pension income. Our fourth quarter results have been adjusted for onetime items, including the settlement charge associated with the planned termination of our pension plan. Before turning to the specifics of the quarter, I'd like to share a few thoughts on our performance relative to our original outlook. As we began the quarter, we expected stronger fourth quarter sales growth to offset the collective headwinds from depreciation, interest and lost pension income, resulting in earnings growth. However, our results fell short of our expectations, entirely driven by weaker sales in Europe and lower sales to independent owners in our U.S. NAPA business. Our gross margin expansion and absolute dollars of SG&A expense were right on our forecast, and the underlying fundamentals driving our segments remain solid. With respect to Europe, underlying market conditions deteriorated sequentially from September to October and then again in November, leaving the underlying market growth down mid-single digits for the quarter. This deterioration led to a decrease in sales for Europe versus our expectations for low single-digit growth. The impact of these weaker market conditions had an estimated $0.10 negative impact to the quarter relative to our initial view. Despite the tough market conditions, we believe our performance was aligned with general market trends across the region. While overall sales at NAPA were up in the fourth quarter, our sales to our independent owners fell below our expectations. Comparable sales to our independent owners were flat in the fourth quarter, down from the 1% growth we delivered in the third quarter. While we had a tough comparison to last year due to a promotional event that did not repeat this year, we anticipated the momentum from the third quarter to carry over. Our independent owners continue to navigate a challenging backdrop in the U.S., balancing numerous headwinds while serving the needs of our customers. The lower-than-expected sales to independent owners created an estimated $0.10 negative impact relative to our expectations for the quarter. Before I take you through the details of the quarter, my comments this morning will focus on adjusted results, which, as I mentioned, include several nonrecurring items recorded in the fourth quarter. In total, these adjustments amounted to $1.1 billion of pretax costs or $825 million after tax. These adjustments related to the following: first, as previously communicated, the termination of our U.S. pension plan was successfully completed in December. The termination required us to immediately recognize a onetime noncash settlement charge of $742 million, which represented the accumulation over many decades of the actuarial gains and losses on the plan and had been recorded as an unrecognized loss on our balance sheet. The final settlement charge was in line with our expectations. Second, we recorded a charge of approximately $150 million for expected losses on amounts due to us from First Brands Group. The amounts owed to GPC, including rebates on purchases, were subject to long-term supply agreements across our Automotive businesses. While we made extensive efforts to recover the amounts owed, the bankruptcy and the financial challenges at First Brands were significant. Given the financial and operational difficulties, during the fourth quarter, we moved our business away from First Brands and executed our contingency plans with alternative suppliers. This was the right decision for our customers and moves us into 2026 with confidence in our supply chain and inventory availability. Third, we increased our asbestos product liability reserve by $103 million, which reflects a rise in both the frequency and severity of claims. While our transition to asbestos-free products was largely completed in the early 1990s, our claims experience in 2025 deteriorated and gave rise to the adjustment, which is not reflective of our current operations. During the quarter, we had $87 million of costs related to our global restructuring program. And lastly, we incurred $30 million in charges related to accounting adjustments in the fourth quarter, largely related to the accounting for asset retirement obligations. With that backdrop, let's turn to the performance of the underlying business. As we look at the fourth quarter, total GPC sales increased 4.1%, including a 170 basis point improvement in comparable sales, a 150 basis point benefit from acquisitions and a 130 basis point benefit from foreign currency. As we expected, the tariff landscape normalized as we closed out 2025 with a low single-digit pricing benefit in revenue and a low single-digit increase in cost of goods sold, resulting in a slight benefit to our consolidated results for the quarter. Turning to our quarterly sales results by business unit. Starting with Industrial. Sales in the fourth quarter increased 4.6% with comparable sales up 3.4%, in line with the third quarter. During the quarter, average daily sales were solid and improved sequentially with December being the strongest month despite declines in PMI throughout the quarter. Sales inflation during the fourth quarter was 4%. Looking at the performance of our end markets, we experienced sequential improvement with growth in 9 of our 14 end markets and strength in automotive, iron and steel, food products and fabricated metals, which were offset by softer demand in lumber and wood, chemicals, and oil and gas. As we look at North America Automotive, total sales in the fourth quarter increased 2.4%, with comparable sales up 1.7%. Within North America Automotive, total sales and comparable sales in the U.S. were up approximately 2% in the fourth quarter. At a high level, the comparable sales performance in the fourth quarter looked very similar to the third quarter. Average daily sales were positive in all 3 months. Sales inflation during the fourth quarter was slightly over 3%. We continue to see strong sales to our commercial customers, which represents over 80% of sales in the U.S. Comparable sales out to commercial customers increased approximately 3.5%, while comparable sales to retail customers declined low single digits. Looking at the performance of our company-owned stores to our commercial customers, comparable sales grew nearly 6%, with strength in AutoCare, major accounts and fleet and government. As Will mentioned, we closed on the acquisition of Benson in Canada at the end of October, which provided a nice benefit for the 2 months they were included in our results. Turning to our International Automotive business. Total sales in the fourth quarter increased approximately 6% with comparable sales down approximately 1%. In Europe, during the fourth quarter, total sales decreased approximately 2% in local currency with comparable sales down approximately 3% as a result of weak market conditions, which were partially offset by the NAPA private label product expansion across the region. In Asia Pacific, sales in the fourth quarter increased approximately 5% in local currency with comparable sales also up approximately 5%. Our team continues to outperform and take market share in both the trade and retail customer segments. As we turn back to our consolidated results, our adjusted gross margin was 37.6% in the fourth quarter, an increase of 70 basis points from last year. The improvement in our gross margin was primarily driven by the ongoing execution of our strategic pricing and sourcing initiatives with all 3 segments expanding gross margin in the fourth quarter. Our adjusted SG&A as a percentage of sales for the fourth quarter was 29.7%, an increase of 30 basis points from the prior year. On an adjusted basis, SG&A grew year-over-year in absolute dollars by $88 million, including $60 million from acquisitions and foreign currency. However, our acquisitions continue to have a positive impact to net operating profit margin. Our core SG&A increased 1.7% or $28 million in the quarter. Our rate of core SG&A expense growth improved from the 2.7% growth we experienced in the third quarter. Stubborn cost inflation continues to be a challenge, impacting people costs, including high single-digit inflation in U.S. health care costs as well as rent and freight. The growth of our core SG&A was mitigated by a $75 million benefit related to our restructuring and cost initiatives, as our actions worked to mitigate cost inflation. We made significant progress on our global restructuring efforts in 2025. During the year, we incurred restructuring costs of approximately $255 million. And through the team's hard work, we exceeded expectations, realizing approximately $175 million of cost savings or a benefit of $0.95 per share. This was above our target of delivering $110 million to $135 million of cost savings in 2025. For the quarter, total adjusted EBITDA margin was 7.6%, up 10 basis points year-over-year. The improvement was driven by gross margin expansion and the benefits of our restructuring activities, which offset cost inflation in wages, health care and rent. Our fourth quarter adjusted net income, which excludes nonrecurring expenses of $825 million after tax, or $5.94 per share, was $216 million or $1.55 per share. Our full year adjusted net income was $1 billion or $7.37 per share. Turning to our cash flows. For the year, we generated approximately $890 million in cash from operations with $380 million in the fourth quarter and $421 million of free cash flow. Our operating cash flow in 2025 was impacted by lower earnings and higher interest payments. Our cash flows were also impacted by working capital changes associated with commercial activity in the first half of 2024 from inventory investments made at NAPA and the associated build of accounts payable and receipt of supplier incentives, which 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 to over $700 million in the second half of 2025. In 2025, we invested approximately $470 million back into the business in the form of capital expenditures as we continue to modernize our supply chain and IT systems. In addition, we invested approximately $320 million in M&A, highlighted by our Benson acquisition in Canada. Now let's turn to our outlook for 2026. We expect diluted earnings per share, which includes the expenses related to our transformation efforts, to be in a range of $6.10 to $6.60. We expect adjusted diluted earnings per share to be in the range of $7.50 to $8, up 5% at the midpoint of the range versus 2025 adjusted EPS of $7.37. Overall, our 2026 outlook has been developed based on our expectations for underlying market conditions, modest price inflation and further gross margin expansion. We've also assumed continued cost inflation, partially offset by the benefits of our restructuring and transformation programs. Depreciation and interest expense will be a headwind of approximately $0.30 in 2026 as we continue to invest in the business for growth. Let me take a few moments to review the individual elements of our outlook in more detail, which we've expanded in light of our separation announcement. We expect total GPC sales growth to be in the range of 3% to 5.5%. Our outlook assumes that market growth will be roughly flat and that the benefit from pricing, including inflation and tariffs, will be approximately 2%. Our sales outlook also assumes the benefit of M&A carryover and about 1 point of growth from our strategic initiatives and about 1 point of benefit from foreign currency, assuming current market rates. As we look at sales for the individual business segments, we expect total sales growth in our North America segment to be 3% to 5% with comparable sales growth of 1.5% to 3.5%. Our total sales growth in North America in 2026 benefits from our Benson acquisition in Canada, which closed in the fourth quarter of 2025. For International Automotive, we expect total sales growth of 3% to 6% and comparable sales growth of 1.5% to 3.5%. For the Industrial segment, we expect total sales growth of 3% to 6% with comparable sales growth in the 3% to 6% range. For gross margin, we expect 40 to 60 basis points of full year adjusted gross margin expansion, driven by our continued focus on our strategic sourcing and pricing initiatives. Our outlook assumes that adjusted SG&A will deleverage between 30 and 50 basis points for the year. Despite the restructuring actions we've taken over the past 2 years to reduce our cost structure, our SG&A outlook is driven by persistent cost inflation. We expect ongoing cost inflation in salaries and wages, driven primarily by mandatory pay increases in international jurisdictions and continued headwinds from inflation in U.S. health care costs, which are growing at a high single-digit rate. As we begin 2026, and as Will shared in his remarks, we are continuing key transformation programs globally, including in our U.S. NAPA business that further strengthen our businesses moving forward. In addition, given the persistent cost inflation headwinds, we're taking further actions to adjust our cost structure to market conditions. We expect expenses associated with transformation activities and cost actions to be in a range of $225 million to $250 million, with an anticipated benefit in 2026 of $100 million to $125 million. These expenses do not include any costs associated with the separation of the businesses. We expect consolidated adjusted EBITDA in 2026 to be in a range of $2 billion to $2.2 billion, an increase of 2% to 9% compared to prior year. In our North America Automotive segment, we expect segment EBITDA of $700 million to $730 million, an increase of 5% to 9% versus last year. For International Automotive, we expect segment EBITDA of $560 million to $600 million or an increase of 4% to 10% compared to last year. And finally, for Global Industrial, we expect segment EBITDA of $1.2 billion to $1.3 billion, an increase of 7% to 12% versus last year. For corporate, we expect expenses to be in a range of 1.5% to 2% of total sales. Two additional areas to highlight. For 2026, we expect depreciation and amortization expense to be in a range of $515 million to $540 million as continued growth investments in technology and supply chain drive the year-over-year increases. Of note, our investments in technology generally have shorter useful lives, typically ranging from 3 to 5 years. For interest expense, we currently expect to be in a range of $180 million to $190 million as we expect debt levels to remain consistent with 2025, but anticipate higher borrowing costs in 2026. With those details, I'd like to share some thoughts on the start of 2026. As we consider the range of outcomes for the year, our opportunities to achieve the high end of our expectations center on improving market conditions in Europe and sustained PMI readings above 50, driving a tailwind in our Industrial business. Conversely, should market conditions deteriorate further in Europe or we experience downside variability in sales to our independent owners, we would expect to be in the lower end of our range. Near-term market conditions remain mixed with an improved PMI reading in January, but continued soft market conditions in Europe. Our sales in January on an average selling day basis were strong, highlighted by strength at Motion. Europe remains a watchpoint, and we do not expect an improvement in market conditions in Europe through the first quarter from those that we experienced as we closed out the year. With the backdrop of an improved PMI reading in January, we are encouraged by the start of 2026, but are remaining prudent in our outlook. Turning to a few other items of interest. We expect to generate cash from operations in a range of $1 billion to $1.2 billion for the year, up approximately 20% from 2025 at the midpoint of the range, inclusive of the cost of transformation and other actions that I shared. For CapEx, we expect approximately $450 million to $500 million or approximately 2% of revenue in 2026, at the high end of the range, in line with our 2025 levels. As we look at M&A, our global pipeline remains robust, and we will continue to remain disciplined, pursuing opportunities that create value. We expect our M&A capital deployment to be consistent with 2025 and in a range of $300 million to $350 million. The fourth quarter required us to navigate many areas, including unexpected sales headwinds, the bankruptcy of First Brands Group and transition of our supply chain to new suppliers and the onetime adjustments I outlined. However, we maintained tight control on our expenses and drove continued expansion in gross margin, themes we will carry into 2026 alongside solid industry fundamentals. As we turn to 2026, we are excited to begin a new chapter in our history with the announcement this morning of our plan to create 2 industry-leading public companies. Our strategic initiatives, investments in supply chain and technology and efforts to drive productivity over the past few years have positioned both businesses for long-term success. We are encouraged by the initial positive indicators to start 2026, but will remain prudent on our views on the full year outlook given the early stages of the year. Thank you, and I will now turn the call back to the operator for your questions.

[Operator Instructions] Your first question will be from Scot Ciccarelli at Truist.

I think separating the businesses is a good idea. But with that on the table, can you help us better understand the margin pressures on the North American Auto business, a 14% EBITDA decline against pretty soft performance in the prior year and a 5.5% margin just seems quite a bit lower than what we would have anticipated. And then related to that, so part 2, with the improved disclosure, can you give us an idea of how much the earnings contribution in North America is coming from your company-owned stores versus how much from the independents?

Thanks, Scot. I'll start off on the EBITDA margin for North America and maybe take it up just a little bit. I think when we think about the fourth quarter, at a consolidated level, we think about what happened during the quarter, we talked a little bit in my prepared remarks about our expectations coming in short both in Europe and with independent owners. We also had profit growth -- we also had sales growth that came from FX in the quarter. There's very little profit benefit on that as well. So when we look at the movement through the P&L, I think we did a nice job of controlling costs despite some inflation in wages. Core cost growth in the quarter was 1.7%, which excludes acquisitions and FX. So I think the benefits of our restructuring program have performed nicely, and in looking at the core, we've really tried to control it pretty well. That left us with an EBITDA level that wasn't enough to offset some of those headwinds we talked about at the beginning of the year and then it persisted through the course of the year with depreciation, pension and interest expense. When I look at North America Auto -- or the North American business more specifically, I think the themes are similar to the ones I talked about in my prepared remarks. We had the wage pressure with cost inflation. U.S. health care has been a particular challenge here in the fourth quarter. For the full year, it was up $32 million, about $20 million more than our expectations for the full year. And that particular cost is growing at a very high clip, I would say high single digits for the full year. Beyond that, we had some rent and freight pressure in the North American business in the fourth quarter from cost inflation. And on IT, a disproportionate level of our IT investments are happening in the North America business, and that's challenging SG&A because, as you know, those investments, as we modernize and move to cloud-based technology, move [indiscernible] SG&A.

And then -- okay. And can you give us an idea about the earnings contribution company-owned versus independents? Obviously, the independents have been under pressure for a while.

Yes, Scot, that's probably something we'll get into more detail when we have an Investor Day for Global Automotive. As you know, the stores are split 65-35 now. Sales is probably more 50-50. But we'd say that both are contributing to our profit. And we'll get into a little bit more color on the model, I think, as we look ahead and move to an Investor Day.

Scot, I would just add one other thing in terms of kind of operationally the improvements that we're making with our company-owned stores, there's been a lot of good work through the year. We made some organization structure changes to make sure that we had the right resources and leadership over top of our company-owned stores, both at an executive level and in the field. And that's really all around driving discipline and standardized processes and all the things that we need to do at a very basic and fundamental level each and every day to take care of our customers. So whether it's pricing strategies, inventory strategies, payroll mix, we've made a lot of really nice progress. I think our payroll percentage in our company-owned stores was as good as it's ever been in the fourth quarter. So a lot to like as we go through the transformation around all things company-owned stores, and then working with these owners to get everybody in a better spot competing in the market.

Next question will be from Greg Melich at Evercore.

My first question was on the inflation trends in the quarter. You mentioned, I think, it was a little over 4% in Industrial and a little over 3% in Auto. Could you give us an update on what you expect in your guidance for this year for those 2 numbers?

Yes. So Greg, I think for inflation for the full year, which includes tariffs, we said 2% as we look across the balance of the entirety of the year. You'll remember that the lapping of benefits will come as we get through the first half. So I would expect pricing benefits to get a little bit more compressed in the second half. About 1 point of the 2% we're expecting for the full year comes from tariff, when we look out across the full year. I think as I look at the 2 individual businesses, we'll just keep it kind of where we've kept it, which is at the 2% low single digit, I don't think they're really disproportionately weighted between the North American Industrial business and the NAPA business. So I don't know that there's a distinction to make between the two. I think the 2% holds for the full year for both, and about 0.5 point -- or I'm sorry, about half of that comes from tariff as we look across the full year.

Greg, I might just also comment that the tariff anomalies in terms of interacting with our suppliers have all largely moderated, so we're back into a more ordinary course commercial discussion with suppliers about how to think about standard price increases as we go through a new calendar year. And in some instances, given all of the activity that happened in 2025, those discussions are noncontroversial and in some cases, not even happening given all the stuff that happened in 2025. So I think we're coming on the back side of all things tariff inflation and we're back to a more standard, structured inflationary environment from a price standpoint.

And my follow-up is on the separation of the businesses. Given that you just had or announced, I think, the 70th year of a dividend increase, you talked about investment-grade capital structure for both businesses. How are you thinking about the dividend, either having one or bringing -- keeping a growth rate given the history of Genuine Parts with that?

Greg, thanks for the question. I think there's a lot more to come on the capital structure of the 2 businesses and the capital allocation policies. And we're working on refining those details internally, and we'll get that to you guys in due course. I think we'll stay focused on, one, capital structure side, as Will mentioned in his remarks, making sure that we have strong balance sheets for both businesses and that we maintain an investment-grade rating on both. When we think about capital allocation, it will start with the business strategies of each individual business and where we think we need to invest and, at the same time, being very balanced on shareholder returns and making sure we're thoughtful about how to do that and the right strategies for those 2 things that attract the right investor bases based on the business strategy. So it will be an important conversation as we go forward. I think there's no change to the GPC dividend policy for this year in 2026. We announced a 3.2% increase this morning. That's in line with last year. And I think it's the right decision for the business as we go through this transition.

Next question will be from Bret Jordan at Jefferies.

On that capital allocation comment, if you look at the 2 sides of the business, do you see one of them sort of needing more catch-up investment than the other? I mean it does seem like the Motion business might be a bit more modern given more significant recent M&A there. Is there a big difference in capital allocation between the two?

I think they have different priorities, Bret. I don't know that they have different overall investment needs. I think as you point out, Motion business is inherently capital-light. And I think Motion has really invested in the business smartly. And as Will mentioned in his prepared remarks, I think Motion is positioned to continue to grow through bolt-on and strategic acquisitions. When you think about the Global Automotive business, we'll continue to do bolt-on M&A there looking ahead. But I also think that we have interesting and exciting and compelling investment opportunities on the capital side that provide medium-term margin expansion. Some of those we've been making. As you guys know, we've put $3 billion of capital into the business over the last 5 years and put it to work. And that's why we're so excited about the opportunities that we have ahead with the separation because we think that business -- don't forget, Global Automotive will be a $16 billion top line business with $1.3 billion of EBITDA at the midpoint of the ranges we gave you for the year. So we're excited about what that business can do. And I think its investment might tilt a little bit more towards CapEx versus M&A, but I don't want to prejudge the capital allocation policy for either company. But hopefully, as we look ahead, that will give you a little color.

I guess then a quick follow-up. European regional performance, I mean it sounds like it's all weak, but is there anything to speak of around performance dispersion?

Yes. I would say it was certainly weak relative to our expectations, as we've commented, with particular weakness in the U.K. and France and Germany, which are our big 3 markets. Interestingly, one of our steady performers, in our Benelux business, it's a small business for us, but it actually sequentially weakened through the year as well. A bright spot for us is the great work happening in Spain and Portugal, which has been a really nice case study for how we bring the NAPA brand to a new geography in Europe. We've essentially doubled that business. We've essentially doubled the EBITDA rate of that business. And the NAPA brand is really carrying the day to, even in a tough market, win share. So generally weak across the board. But as Bert said in his prepared remarks, we've put a lot of capital into Europe. We've got really nice supply chain investments in the U.K., really nice supply chain investments in France, supply chain investments in Germany and Spain. So as that market recovers, we're going to have a very differentiated platform relative to the balance of the market. And it's a great operating team with a lot of focus and a lot of urgency to make hard calls in a tough market. So we feel good about the future. We're just working through a soft moment in time.

And Bret, I'd just add to that, that I think for the region for the fourth quarter, our performance was right in line. Everybody had a bit tougher experience. And I think if you look at the balance of 2025, I'd say that our European business performed in line or better than the region for the full year.

Next question will be from Chris Horvers at JPMorgan.

Congratulations on the announcement. In the new reporting framework, you're breaking out NAPA between North America and International. As you've gone through this process and just a broader separation announcement, how are you thinking about the synergies of operating a Global Automotive business? Obviously, there's the NAPA brand and the sourcing, but is there something to having sort of a dedicated North American company and a dedicated European, Australia, Asia business?

Chris, I would say it's incrementally easier to extract a global harmonization with just an Automotive platform versus Auto and Industrial. Part of that logic was as we thought strategically about what we call One GPC, we've made a lot of progress on that front. But for a combined entity to take that next phase of what does One GPC mean and how do you extract value, it gets complex across both an Industrial and Automotive platform. And I would say it gets incrementally less complex for a stand-alone Automotive business. Having said that, I do think we've come to really appreciate the importance of having specialized expertise down at the geographic level, meaning Asia Pac needs to be close to those customers and make the right customer-level decisions. Europe has customer-specific decisions to make, and so we will continue even in the Global Automotive platform to pursue "One GPC" synergies, but we made good progress and it's probably not the value driver as we think about the value, the multiple expansion and the margin expansion as we move forward.

And then following up on Bret's question. Can you break out for us sort of your expected CapEx and D&A between Motion and the Automotive business as you're planning 2026? What's the split there?

Yes. Bret, we don't -- I'm sorry. Chris, we don't really get into that kind of level of detail. I would just say that when we think about CapEx, we think about it more from an activity perspective. So as I look at the year, about 50% of the upcoming investment for 2026 will be in IT, with about another 30% to 35% in what we would call supply chain modernization, and that might be buildings and DCs and things like that. I would say that in general, though, because Motion is a relatively capital-light business, the orientation, if you want to think about it from the 2 business units, would weight more towards the Global Automotive business.

Chris, I also just wanted to follow up on another thought that I had as it relates to North America. As you know, we put Alain Masse in a leadership role running both our Canadian and our U.S. business. And I would say in that situation, we're excited about the opportunities to continue to extract value from working more closely together as a North American platform. So in that geography, I think we've got intra-geography opportunity, but my comments I think still hold for the cross-global opportunities. Those are a little bit harder to get and will take some time.

Next question will be from Michael Lasser at UBS.

If we look at the North American Auto business, it does appear that market share took a step back in the fourth quarter, perhaps largely related to the independent business. So A, why was that the case? And B, if we look at your guidance, it does indicate that you expect that business to accelerate in 2026. Would that be predicated on an improvement in the independent business? And what would be responsible for that?

Michael, I'll take that one. I think when we look at the performance of the business in the fourth quarter, I'd start with the strength of the company-owned stores in North America and, in particular, NAPA, 4% comp sales. I think they're performing nicely, sequential improvement and we continue to control the things that we can control. As I mentioned with the independent owners in my prepared remarks, we had a quarter -- Q3 in which we had built some nice momentum, sequential improvement for independent owner performance through the course of the year, and we flatly expected that to maintain in the fourth quarter, even with the promotional comp that I mentioned in my prepared remarks. And unfortunately, that wasn't the case, as I shared, and they didn't meet our expectations for what we thought for what would happen in Q4. The independent owners continue to be an important part of our model, and I think they are just continuing to deal with the headwinds that we're all dealing with, whether it's cost inflation, persistent elevated interest rates, all the different dynamics we've mentioned before. As we look ahead to 2026, as I mentioned in my prepared remarks, we're being prudent and cautious. I would say that as we look into the early part of the year, we're not expecting or anticipating any material improvement in performance there. That's not because we are doubting what they're doing. It's more about just being smart about the trajectory as we came out of the fourth quarter. As we move through the balance of the year, Will mentioned just a few minutes ago, we're going to continue to work very closely with them on positioning them for strength in the marketplace and making sure we're staying balanced on investing with them, growing with them and pushing them forward. So look, we've done a lot of great work in this space. I think we'll continue to see more benefits. But in the early part of the year, I think we're being a bit prudent not only with the performance of the independent owner but also in Europe.

Okay. My follow-up question is, as you look forward to the separation, you provided some helpful detail on the profitability of the North American Auto business versus the International Auto business, do you think it would be prudent, and I'm recognizing that it's still very early and you're likely to give some information over time, but just conceptually, do you think it would be prudent to take down the profitability of the North American Auto business as a manner in which to stabilize or maybe improve the overall market share of that segment?

Michael, if I'm following your question, I don't think that's necessary for us to take down the margin profile of the North American business to compete more effectively. I think we feel really good about the work that's been done and that's planned to be done as we move forward. And that should position that business to be a very enticing and compelling value creation story. And part of our assessment and the work that we did in 2025 was to get very granular and tactical on what are the initiatives and what is the pathway to creating and earning our entitlement in North America Automotive. And we're looking forward to sharing all of that great work at an Investor Day to get everybody really excited, as excited as we are, about the potential of that business.

Next question will be from Chris Dankert at Loop Capital Markets.

Again, first off, just congrats on the announcement. Very exciting times. I guess just to move more operationally here, the streamlining, you guys called out, I think, $100 million to $125 million of kind of restructuring benefit for the year. Can you break out what the mix is of the attribution? I assume most of it's Automotive, but any color that would be helpful.

Yes, Chris, actually, it's pretty split between both businesses. Both have really compelling opportunities on the transformation side as we look ahead. So I would say if you're thinking about the benefit that we'll see in the year, one, the benefit will move through the P&L, partly through gross margin and partly through productivity and SG&A, so it's not all a cost play. And as we think about it, we're getting more and more weighted towards transformation activities, I think, which are the more exciting and the more compelling things that are going to drive opportunities in the medium term. We'll still do some restructuring through the course of the year. We'll have some things that we focus on in terms of facilities and store optimization, branch optimization, DC optimization. But the transformation initiatives, again, are thematically aligned to where we've talked about investing. We've got great opportunities in the NAPA supply chain. We're working really hard on sales effectiveness, both at NAPA and the Industrial business. And that gets back to Will's comments on partnership with independent owners. We think we can make some really nice moves with sales effectiveness, not only in company-owned stores at NAPA, but also with independent owners. And those are going to be compelling. And then Motion is doing great work on just doubling down on how great they already are. And when you look past that, we've got some opportunities in the commercial space at Motion. I think we'll be smarter and much sharper on pricing tools and capabilities that are going to be in this set of transformation initiatives. And then finally, we have great opportunities in technology. What Naveen is doing with the team around the world to drive productivity, both in terms of back office, store technology, catalog and search, but also inside of a facility, are really compelling. So we're excited about the future. I think the benefits come through multiple prisms and split between the 2 business units and set us up for even further success as we move into 2027 and beyond.

That's good stuff. Look forward to hearing more detail about that at the Analyst Day for sure. And I guess just a quick follow-up. On the guidance, you mentioned the real -- the baseline assumption is pretty flattish market growth. Any shape to the year there? Is the assumption negative first half, slight positive back half or just pretty ratable?

Yes. No, I think it's a great question, and it's a good chance to give you a little color on the shape of the year. I think we'll expect earnings growth to accelerate sequentially as we move through the quarters. The first quarter, first half will be a bit more muted. I've mentioned a few times European market conditions, and I think we're being prudent on very modest expectations for the independent owners given the exit levels on both areas as we came out of 2025. Flat market growth throughout the year. We're not planning for an acceleration in market conditions throughout 2026, even though we've had a little positive reading here in January on PMI. We started the year -- last year with 2 positive readings, and so I think we're just being smart about lessons learned there. And we'll be watching gross margin rate very closely. It's an important part of our profit profile. And so we're moving through a year in which we're lapping tariff benefits and normalization of the tariff landscape, and so we'll be watching that closely. The interest expense headwind, I mentioned, for 2026 is weighted more in the first half of the year. And so we'll be thinking about that as well as we shape out the year. But having said all that, we're very confident in our full year guidance, and we're focused on driving benefits and additional benefits wherever we can.

Ladies and gentlemen, we have time for one more question. And our last question will be from Kate McShane at Goldman Sachs.

It's just kind of a housekeeping question at the end of this call. But just with regards to growth [indiscernible] maintenance and discretionary, I know you gave numbers for the year. But we just wondered if you could talk to how it performed -- how each category performed in Q4? And what your expectation is with -- if any, if there was deferral in the back half of this year, what that looks like into '26?

Say the last part again, Kate? You cut out just a little bit on our end, sorry.

Sorry, sorry. Just about any kind of deferral that you may have seen towards the end of '25, if '26 -- and when it would be in '26, you could make up some of that deferral?

Yes, Kate. Yes, in terms of nondiscretionary repair, that was, call it, mid-single digits for the fourth quarter. So that's been pretty consistently improving as we've gone through the year. I would say the same for maintenance and service. And actually, in the fourth quarter, the discretionary part of the business was also kind of mid-single digits as well. So for the full year, you had nondiscretionary repair of mid-singles, maintenance and service kind of going from low to mid-singles, and then discretionary going from flat to slightly up as we look at the math for the full year. So I think that those trends probably continue to improve as we go through into 2026. I would tell you, customers are still looking for value as we look at all of our assortment strategies and where we're seeing good traction. There's obviously people emphasizing our value lines and some of the assortment that we have below the better and best line. So I think all those trends will continue into 2026. That line up with this concept that Bert's talking about, which is kind of a flattish volume market, slightly down with some price benefit to be kind of neutral overall for the market in 2026.

Thank you. This does conclude today's Q&A. I would now like to turn the call back over to Will Stengel, CEO. Please go ahead.

Thank you, everybody, for joining us today. We look forward to updating you on the transaction and our progress as we move through the quarter on the April earnings call. Thanks again for being with us, and thanks for your support.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.