Genuine Parts pany(GPC) - 2024 Q3 - Quarterly Results

Headline Results and Company Overview This section provides an overview of Genuine Parts Company's financial performance for Q3 and 9M 2024, including revised full-year guidance and company background Third Quarter 2024 Highlights Genuine Parts Company reported Q3 2024 sales of $6.0 billion, a 2.5% increase, but diluted EPS decreased to $1.62 and adjusted diluted EPS to $1.88, both below expectations primarily due to market weakness in Europe and the Industrial business Third Quarter 2024 Key Financials | Metric | Q3 2024 | Q3 2023 | | :-------------------- | :------ | :------ | | Sales | $6.0 billion | $5.8 billion | | Diluted EPS | $1.62 | $2.49 | | Adjusted Diluted EPS | $1.88 | $2.49 | - Sales growth of 2.5% was attributable to a 3.2% benefit from acquisitions and a net 0.1% favorable impact of foreign currency and other, partially offset by a 0.8% decrease in comparable sales[2] - An additional selling day in the U.S. positively impacted sales growth by approximately 1.1%[2] Nine Months 2024 Highlights For the first nine months of 2024, sales increased by 1.2% to $17.7 billion, while net income and adjusted diluted EPS both decreased compared to the prior year period Nine Months 2024 Key Financials | Metric | 9M 2024 | 9M 2023 | | :-------------------- | :------ | :------ | | Sales | $17.7 billion | $17.5 billion | | Net income | $771 million | $1.0 billion | | Diluted EPS | $5.51 | $7.08 | | Adjusted Diluted EPS | $6.55 | $7.08 | - Adjusted net income decreased 8.4% to $915 million compared to $1.0 billion in the prior year period, and adjusted diluted earnings per share decreased 7.5%[6] Revised Full-Year 2024 Outlook The company revised its full-year 2024 guidance, lowering expectations for total sales growth, industrial sales growth, diluted EPS, and adjusted diluted EPS, while maintaining the outlook for automotive sales growth, effective tax rate, and cash flow 2024 Full-Year Outlook Revision | Metric | Previous Outlook | Updated Outlook | | :---------------------------------- | :------------------- | :------------------- | | Total sales growth | 1% to 3% | 1% to 2% | | Automotive sales growth | 1% to 3% | 3% to 4% | | Industrial sales growth | 0% to 2% | -2% to -1% | | Diluted earnings per share | $8.55 to $8.75 | $6.60 to $6.80 | | Adjusted diluted earnings per share | $9.30 to $9.50 | $8.00 to $8.20 | | Effective tax rate | Approximately 24% | Approximately 24% | | Net cash provided by operating activities | $1.3 billion to $1.5 billion | $1.3 billion to $1.5 billion | | Free cash flow | $800 million to $1.0 billion | $800 million to $1.0 billion | About Genuine Parts Company Genuine Parts Company, established in 1928, is a leading global service provider of automotive and industrial replacement parts and value-added solutions, operating over 10,700 locations across 17 countries with more than 60,000 employees - Established in 1928, Genuine Parts Company is a leading global service provider of automotive and industrial replacement parts and value-added solutions[15] - The company operates over 10,700 locations spanning 17 countries, supported by more than 60,000 teammates[15] - Its Automotive Parts Group operates across the U.S., Canada, Mexico, Australasia, France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Spain and Portugal, while its Industrial Parts Group serves customers in the U.S., Canada, Mexico and Australasia[15] Detailed Third Quarter 2024 Performance This section details Genuine Parts Company's consolidated and segment-specific financial performance for the third quarter of 2024, highlighting sales drivers and profitability challenges Consolidated Financial Results In Q3 2024, consolidated sales increased by 2.5% to $6.0 billion, primarily driven by acquisitions, but net income significantly decreased by 35.5% to $227 million, and adjusted net income also fell by 25.1% to $263 million, largely due to restructuring and acquisition-related costs Q3 2024 Consolidated Financials (YoY Change) | Metric | Q3 2024 (in millions) | Q3 2023 (in millions) | Change (%) | | :-------------------- | :-------------------- | :-------------------- | :--------- | | Sales | $6,000 | $5,800 | +2.5% | | Net income | $227 | $351 | -35.5% | | Adjusted net income | $263 | $351 | -25.1% | - Adjusted net income excludes a net expense of $36 million after tax adjustments, or $0.26 per diluted share, related to global restructuring initiatives and the acquisition and integration of independent stores[3] Segment Performance In Q3 2024, the Automotive Parts Group achieved sales growth of 4.8% driven by acquisitions, but its segment profit declined by 18.6%, while the Industrial Parts Group experienced a 1.2% sales decrease due to lower comparable sales, with its segment profit falling by 8.5% Automotive Parts Group The Automotive Parts Group reported $3.8 billion in global sales, up 4.8% year-over-year, primarily driven by acquisitions, though segment profit decreased by 18.6% to $262 million Q3 2024 Automotive Segment Performance | Metric | Value | | :-------------------- | :-------------------- | | Global Automotive sales | $3.8 billion (up 4.8% YoY) | | Sales growth from acquisitions | 4.4% | | Comparable sales increase | 0.2% | | Segment profit | $262 million (down 18.6% YoY) | | Segment profit margin | 6.9% (down 200 basis points YoY) | - The 4.4% benefit from acquisitions was primarily driven by the acquisition of automotive stores in the U.S[4] - An additional selling day in the U.S. positively impacted Global Automotive sales growth by approximately 0.9%[4] Industrial Parts Group The Industrial Parts Group's global sales decreased by 1.2% to $2.2 billion due to lower comparable sales, resulting in an 8.5% decline in segment profit to $259 million Q3 2024 Industrial Segment Performance | Metric | Value | | :-------------------- | :-------------------- | | Global Industrial sales | $2.2 billion (down 1.2% YoY) | | Sales growth from acquisitions | 1.3% | | Comparable sales decrease | 2.4% | | Segment profit | $259 million (down 8.5% YoY) | | Segment profit margin | 11.9% (down 100 basis points YoY) | - The sales decrease was primarily due to a 2.4% decrease in comparable sales, partially offset by a 1.3% benefit from acquisitions[5] - An additional selling day in the U.S. positively impacted Global Industrial sales growth by approximately 1.4%[5] Detailed Nine Months 2024 Performance This section provides a detailed analysis of Genuine Parts Company's consolidated financial results, balance sheet, cash flow, and capital allocation for the first nine months of 2024 Consolidated Financial Results For the nine months ended September 30, 2024, total sales increased by 1.2% to $17.7 billion, but net income decreased by 22.9% to $771 million, and adjusted net income decreased by 8.4% to $915 million, reflecting a challenging operating environment 9M 2024 Consolidated Financials (YoY Change) | Metric | 9M 2024 (in millions) | 9M 2023 (in millions) | Change (%) | | :-------------------- | :-------------------- | :-------------------- | :--------- | | Sales | $17,700 | $17,500 | +1.2% | | Net income | $771 | $1,000 | -22.9% | | Adjusted net income | $915 | $1,000 | -8.4% | Balance Sheet, Cash Flow and Capital Allocation For the first nine months of 2024, the company generated $1.1 billion in cash flow from operations and $711 million in free cash flow, with total liquidity at quarter-end reaching $2.6 billion, while investing activities included significant M&A spending 9M 2024 Cash Flow & Liquidity | Metric | Value | | :---------------------------------- | :-------------------- | | Cash flow from operations | $1.1 billion | | Free cash flow | $711 million | | Net cash used in investing activities | $1.2 billion | | - Capital expenditures | $386 million | | - M&A | $954 million | | Net cash used in financing activities | $125 million | | - Dividends paid | $411 million | | - Stock repurchases | $112 million | | Total liquidity (as of Sep 30, 2024) | $2.6 billion | | - Cash and cash equivalents | $1.1 billion | | - Revolving credit facility available | $1.5 billion | Financial Guidance and Non-GAAP Measures This section outlines Genuine Parts Company's revised full-year 2024 financial guidance and explains the use and reconciliation of non-GAAP financial measures for enhanced transparency 2024 Outlook Revision Genuine Parts Company revised its full-year 2024 guidance, lowering its total sales growth and adjusted diluted EPS expectations due to recent business trends, financial results, and the global economic outlook 2024 Full-Year Outlook Changes | Metric | Previous Outlook | Updated Outlook | Change | | :---------------------------------- | :------------------- | :------------------- | :----- | | Total sales growth | 1% to 3% | 1% to 2% | Lowered | | Automotive sales growth | 1% to 3% | 3% to 4% | Raised | | Industrial sales growth | 0% to 2% | -2% to -1% | Lowered | | Diluted earnings per share | $8.55 to $8.75 | $6.60 to $6.80 | Lowered | | Adjusted diluted earnings per share | $9.30 to $9.50 | $8.00 to $8.20 | Lowered | | Effective tax rate | Approximately 24% | Approximately 24% | Unchanged | | Net cash provided by operating activities | $1.3 billion to $1.5 billion | $1.3 billion to $1.5 billion | Unchanged | | Free cash flow | $800 million to $1.0 billion | $800 million to $1.0 billion | Unchanged | Non-GAAP Information and Comparable Sales Definitions The company uses non-GAAP financial measures like adjusted net income, adjusted diluted EPS, and free cash flow to provide greater transparency into core operations by excluding one-time events such as restructuring and acquisition-related costs, with comparable sales defined as period-over-period sales excluding acquisitions, foreign currency, and other impacts - Non-GAAP measures (adjusted net income, adjusted diluted EPS, free cash flow) provide meaningful supplemental information by removing items not representative of core operations or distorting longer-term operating trends, such as global restructuring initiatives and acquisition/integration costs[11] - Comparable sales is a key metric referring to period-over-period comparisons of sales excluding the impact of acquisitions, foreign currency, and other, computed using total business days[12] Reconciliation of Non-GAAP Measures The company provides reconciliations for non-GAAP measures, specifically adjusted net income, adjusted diluted EPS, and free cash flow, to offer a clearer view of core operational performance by excluding the impact of one-time restructuring and acquisition-related costs Adjusted Net Income and Diluted EPS Reconciliation This section reconciles GAAP net income and diluted EPS to their adjusted non-GAAP counterparts, detailing the impact of restructuring and acquisition-related costs for Q3 and 9M 2024 Adjusted Net Income and Diluted EPS Reconciliation | Metric | Q3 2024 (GAAP) | Adjustments | Q3 2024 (Adjusted) | 9M 2024 (GAAP) | Adjustments | 9M 2024 (Adjusted) | | :---------------------------------- | :------------- | :---------- | :----------------- | :------------- | :---------- | :----------------- | | Net income (in thousands) | $226,582 | $45,296 | $263,013 | $771,020 | $190,363 | $915,472 | | Diluted EPS | $1.62 | $0.32 | $1.88 | $5.51 | $1.37 | $6.55 | - Adjustments for Q3 2024 include $41,023 thousand for restructuring and other costs and $4,273 thousand for acquisition and integration related costs, with a tax impact of $(8,865) thousand[30][31] - Adjustments for the nine months ended September 30, 2024, include $161,312 thousand for restructuring and other costs and $29,051 thousand for acquisition and integration related costs, with a tax impact of $(45,911) thousand[30][31] Free Cash Flow Reconciliation This section reconciles net cash provided by operating activities to free cash flow for the nine months ended September 30, detailing capital expenditures and providing the full-year outlook Free Cash Flow Reconciliation (9 Months Ended Sep 30) | Metric (in thousands) | 2024 | 2023 | | :---------------------------------- | :--------- | :--------- | | Net cash provided by operating activities | $1,096,225 | $1,082,446 | | Purchases of property, plant and equipment | $(385,590) | $(349,858) | | Free Cash Flow | $710,635 | $732,588 | - The full-year 2024 outlook for Free Cash Flow remains $800 million to $1.0 billion, with anticipated purchases of property, plant and equipment around $500 million[39] Additional Information This section provides details on the conference call for Q3 2024 results and important disclosures regarding forward-looking statements and associated risks Conference Call Genuine Parts Company held a conference call on October 22, 2024, at 8:30 a.m. Eastern Time to discuss the quarter's results, with a supplemental earnings deck and replay available on the investor relations website - A conference call was held on October 22, 2024, at 8:30 a.m. Eastern Time to discuss the results[14] - A supplemental earnings deck and a replay of the call are available on the company's investor relations website[14] Forward-Looking Statements The release contains forward-looking statements regarding business and economic trends, strategic execution, and revised 2024 financial guidance, which are subject to various risks and uncertainties, including general economic conditions, inflation, geopolitical conflicts, supply chain disruptions, and integration of acquired businesses, and actual results may differ materially - Forward-looking statements include views on business and economic trends, expectations regarding strategic priorities, and revised full-year 2024 financial guidance[16] - Risks and uncertainties include changes in general economic conditions (unemployment, inflation, financial institution disruptions, geopolitical conflicts), volatility in oil prices, significant cost increases, natural disasters, public health emergencies, ability to maintain debt covenants, integrate acquired businesses, and implement business initiatives[17][19] - Readers are cautioned not to place undue reliance on forward-looking statements, as actual results or events may differ materially due to various important factors[17] Consolidated Financial Statements This section presents Genuine Parts Company's condensed consolidated statements of income, balance sheets, cash flows, and segment performance for the reported periods Condensed Consolidated Statements of Income The condensed consolidated statements of income show a 2.5% increase in net sales for Q3 2024 and a 1.2% increase for the nine months ended September 30, 2024, compared to the prior year periods, but net income significantly decreased for both periods, primarily due to higher operating expenses, including restructuring and other costs Condensed Consolidated Statements of Income (in thousands) | Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 | | :------------------------- | :---------- | :---------- | :---------- | :---------- | | Net sales | $5,970,198 | $5,824,602 | $17,716,396 | $17,504,726 | | Gross profit | $2,198,441 | $2,109,241 | $6,453,399 | $6,257,385 | | Total operating expenses | $1,876,578 | $1,644,076 | $5,413,464 | $4,929,022 | | Income before income taxes | $297,593 | $465,060 | $1,008,975 | $1,323,555 | | Net income | $226,582 | $351,198 | $771,020 | $999,649 | | Diluted earnings per share | $1.62 | $2.49 | $5.51 | $7.08 | - Restructuring and other costs were $41,023 thousand for Q3 2024 and $153,825 thousand for the nine months ended September 30, 2024, compared to zero in the prior year periods[22] Segment Net Sales and Profit Information The Automotive segment reported sales growth of 4.8% for Q3 2024 and 2.9% for the nine months, while the Industrial segment saw sales decline by 1.2% and 1.5% respectively, with both segments experiencing a decrease in segment profit for both periods Segment Net Sales (in thousands) | Segment | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 | | :-------------------- | :---------- | :---------- | :---------- | :---------- | | Automotive | $3,799,789 | $3,626,943 | $11,100,800 | $10,787,769 | | Industrial | $2,170,409 | $2,197,659 | $6,615,596 | $6,716,957 | | Total Net Sales | $5,970,198 | $5,824,602 | $17,716,396 | $17,504,726 | Segment Profit (in thousands) | Segment | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 | | :-------------------- | :---------- | :---------- | :---------- | :---------- | | Automotive | $262,195 | $322,004 | $849,106 | $915,771 | | Industrial | $258,753 | $282,807 | $806,433 | $828,166 | Change in Net Sales (Q3 2024) | Segment | Comparable Sales | Acquisitions | Foreign Currency | Other | GAAP Total Net Sales | | :-------------------- | :--------------- | :----------- | :--------------- | :---- | :------------------- | | Automotive | 0.2 % | 4.4 % | 0.5 % | (0.3)% | 4.8 % | | Industrial | (2.4)% | 1.3 % | (0.1)% | — % | (1.2)% | | Total Net Sales | (0.8)% | 3.2 % | 0.3 % | (0.2)% | 2.5 % | Change in Net Sales (9M 2024) | Segment | Comparable Sales | Acquisitions | Foreign Currency | Other | GAAP Total Net Sales | | :-------------------- | :--------------- | :----------- | :--------------- | :---- | :------------------- | | Automotive | (0.1)% | 3.4 % | 0.1 % | (0.5)% | 2.9 % | | Industrial | (2.2)% | 0.8 % | (0.1)% | — % | (1.5)% | | Total Net Sales | (0.9)% | 2.4 % | — % | (0.3)% | 1.2 % | Condensed Consolidated Balance Sheets As of September 30, 2024, total assets increased to $20.3 billion from $18.0 billion at December 31, 2023, primarily driven by increases in merchandise inventories, goodwill, and property, plant and equipment, while total liabilities also increased to $15.5 billion from $13.5 billion, with significant increases in trade accounts payable and current portion of debt Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :---------------------------------- | :----------- | :----------- | | Total current assets | $10,709,502 | $9,605,852 | | Goodwill | $3,034,339 | $2,734,681 | | Property, plant and equipment, net | $1,909,522 | $1,616,785 | | Total assets | $20,259,178 | $17,968,454 | | Total current liabilities | $9,123,408 | $7,827,109 | | Long-term debt | $3,806,950 | $3,550,930 | | Total liabilities | $15,548,914 | $13,543,865 | | Total equity | $4,710,154 | $4,416,985 | - Merchandise inventories, net, increased from $4,676,686 thousand at December 31, 2023, to $5,527,034 thousand at September 30, 2024[27] - Current portion of debt significantly increased from $355,298 thousand at December 31, 2023, to $810,982 thousand at September 30, 2024[27] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash provided by operating activities was $1.1 billion, a slight increase from the prior year, but net cash used in investing activities significantly increased to $1.2 billion, primarily due to higher acquisitions of businesses, while net cash provided by financing activities was $124.8 million, a reversal from net cash used in the prior year Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | 9M 2024 | 9M 2023 | | :---------------------------------- | :---------- | :---------- | | Net cash provided by operating activities | $1,096,225 | $1,082,446 | | Net cash used in investing activities | $(1,245,192) | $(473,429) | | Net cash used in financing activities | $124,828 | $(599,019) | | Net decrease in cash and cash equivalents | $(23,889) | $1,174 | | Cash and cash equivalents at end of period | $1,078,118 | $654,637 | - Acquisitions of businesses accounted for $(954,207) thousand in net cash used in investing activities for 9M 2024, a substantial increase from $(218,177) thousand in 9M 2023[28] - Financing activities shifted from net cash used of $(599,019) thousand in 9M 2023 to net cash provided of $124,828 thousand in 9M 2024, influenced by changes in proceeds from and payments on debt[28]