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Item 2. Management’s Discussion and Analysis

2025-04-22 compared with 2024-10-22 · 154 added, 183 removed, 112 unchanged (75% of the section changed)

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The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and accompanying notes contained herein and with the audited Consolidated Financial Statements, accompanying notes, related information and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2024.

The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of results for the year ended December 31, 2024.

The results of operations for the three months ended March 31, 2025 are not necessarily indicative of results for the year ended December 31, 2025.

Forward-Looking Statements

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Actual results or events may differ materially from those indicated as a result of various important factors.

Such factors may include, among other things, changes in general economic conditions, including unemployment, inflation (including the impact of tariffs) or deflation, financial institution disruptions and geopolitical conflicts such as the conflict between Russia and Ukraine, the conflict in the Gaza strip and other unrest in the Middle East;

Such factors may include, among other things, changes in general economic conditions, including unemployment, inflation (including the direct and indirect impact of tariffs and other similar measures, as well as the potential impact of retaliatory tariffs and other actions) or deflation, financial institution disruptions and geopolitical conflicts such as the conflict between Russia and Ukraine, the conflict in the Gaza strip and other unrest in the Middle East;

volatility in oil prices;

significant cost increases, such as rising fuel and freight expenses;

natural disasters or adverse weather conditions, such as recent severe hurricanes;

public health emergencies, including the effects on the financial health of our business partners and customers, on supply chains and our suppliers, on vehicle miles driven as well as other metrics that affect our business, and on access to capital and liquidity provided by the financial and capital markets;

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the ability to maintain favorable supplier arrangements and relationships;

changes in national and international legislation or government regulations or policies, including changes to import tariffs, environmental and social policy, infrastructure programs and privacy legislation, and their impact to us, our suppliers and customers;

changes in tax policies;

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You are advised, however, to review any further disclosures we make on related subjects in our subsequent Forms 10-K, 10-Q, 8-K and other reports filed with the SEC.

Genuine Parts Company is a service organization engaged in the global distribution of automotive and industrial replacement parts.

We have a long tradition of growth dating back to 1928, the year we were founded in Atlanta, Georgia.

We conduct business in North America, Europe and Australasia from a network of more than 10,700 locations.

Our Automotive Parts Group ("Automotive") operates in the U.S., Canada, Mexico, France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Spain, Portugal, Australia and New Zealand, and accounted for approximately 63% of total revenues for the nine months ended September 30, 2024.

Our Industrial Parts Group ("Industrial") operates in the U.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore, and accounted for approximately 37% of our total revenues for the nine months ended September 30, 2024.

Genuine Parts Company ("GPC") is a global service organization with a long history of growth and innovation dating back to our founding in Atlanta, Georgia, in 1928.

Over nearly a century, we’ve built a reputation for delivering excellent customer service, profitable growth, leading distribution capabilities and strong cash flow.

For the three months ended March 31, 2025, we conducted business in North America, Europe and Australasia from more than 10,700 locations.

Our Automotive business operated in the U.S., Canada, Mexico, France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Spain, Portugal, Australia and New Zealand and accounted for 62% of total revenues for the three months ended March 31, 2025.

Our Industrial business operated in the U.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore and accounted for 38% of total revenues during this period.

Our mission is to be the employer, supplier, and investment of choice, while also being a valued corporate citizen in the communities we serve.

This mission drives our strategic financial objectives:

outpacing market revenue growth, improving operating margins, maintaining a strong balance sheet and cash flows, and allocating capital effectively.

As we look to the future, we are leaning into modernizing our supply chain and technology through digital innovation, and data-driven strategies to enhance our competitive edge.

By leveraging technology and optimizing supply chains, we are empowering our teams with cutting-edge tools to focus on delivering exceptional customer service and driving sustainable growth.

At the heart of it all is our commitment to excellence, supported by a culture of continuous improvement and a legacy of strong leadership that has guided us for nearly 100 years.

Key Performance Indicators

We consider a variety of performance and financial measures in assessing our business, and the key performance indicators used to measure our results are Comparable Sales, Gross Profit and Gross Margin, Selling, Administrative and Other Expenses ("SG&A"), Segment Profit and Segment Margin, and Net Income and EBITDA along with their adjusted measures.

We consider a variety of performance and financial measures in assessing our business, and the key performance indicators used to measure our results are Comparable Sales, Gross Profit and Gross Margin, Selling, Administrative and Other Expenses ("SG&A"), Segment EBITDA and Segment EBITDA Margin, and Net Income and EBITDA along with their adjusted measures.

For more information regarding our key performance indicators please reference the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2024.

Results of Operations

Our third quarter net sales were $6.0 billion, up 2.5% year-over-year, and net income was $227 million , down 35.5%.

Acquired businesses contributed 3.2% of net sales growth, of which 1.5% was from acquired stores in our U.S.

Automotive business, including Motor Parts Equipment Corporation ("MPEC") and Walker Automotive Supply, Inc.

An extra selling day contributed to an additional 1.1% of net sales growth.

These benefits were partially offset by essentially flat comparable sales in Automotive and declines in Industrial comparable sales of 2.4%, primarily driven by ongoing weak market conditions across our geographies.

We also estimate the disruption from hurricanes and the CrowdStrike technology outage in the U.S negatively impacted comparable sales in both segments by a total of 0.7%.

Our gross margin improved 0.6% primarily due to the benefits of acquired stores in our U.S.

Automotive business.

Net income declined 35.5% primarily due to fixed cost deleveraging from declines in comparable sales and increased costs related to:

personnel, rent, acquisitions, technology investments, depreciation, restructuring, and interest expense.

Our results of operations are summarized below for the three and nine months ended September 30, 2024 and 2023.

Three Months Ended September 30,

(in thousands) $ % of Sales $ % of Sales $ Change % Change

Net sales $ 5,970,198 100.0 % $ 5,824,602 100.0 % $ 145,596 2.5 %

Cost of goods sold 3,771,757 63.2 % 3,715,361 63.8 % 56,396 1.5 %

Gross profit 2,198,441 36.8 % 2,109,241 36.2 % 89,200 4.2 %

Operating expense:

Selling, administrative and other expenses 1,722,400 28.8 % 1,551,799 26.6 % 170,601 11.0 %

Depreciation and amortization 106,036 1.8 % 83,860 1.4 % 22,176 26.4 %

Provision for doubtful accounts 7,119 0.1 % 8,417 0.1 % (1,298) (15.4) %

Restructuring and other costs 41,023 0.7 % — — % 41,023 — %

Total operating expense 1,876,578 31.4 % 1,644,076 28.2 % 232,502 14.1 %

Non-operating (income) expense:

Interest expense, net 27,818 0.5 % 15,827 0.3 % 11,991 75.8 %

Other (3,548) (0.1) % (15,722) (0.3) % 12,174 (77.4) %

Total non-operating (income) expense 24,270 0.4 % 105 — % 24,165 23014.3 %

Income before income taxes 297,593 5.0 % 465,060 8.0 % (167,467) (36.0) %

Income taxes 71,011 1.2 % 113,862 2.0 % (42,851) (37.6) %

Net income $ 226,582 3.8 % $ 351,198 6.0 % $ (124,616) (35.5) %

Three Months Ended September 30,

(in thousands, except per share data) 2024 2023 $ Change % Change

Diluted EPS $ 1.62 $ 2.49 $ (0.87) (34.9) %

Adjusted diluted EPS $ 1.88 $ 2.49 $ (0.61) (24.5) %

Total adjusted EBITDA $ 476,743 $ 564,747 $ (88,004) (15.6) %

Automotive segment profit $ 262,195 $ 322,004 $ (59,809) (18.6) %

Industrial segment profit $ 258,753 $ 282,807 $ (24,054) (8.5) %

Automotive segment margin 6.9 % 8.9 %

Industrial segment margin 11.9 % 12.9 %

Nine Months Ended September 30,

Our performance in the first quarter of 2025 reflects continued sales growth while navigating a challenging operating environment.

Our first quarter net sales of $5.9 billion increased 1.4% year-over-year, despite having one less selling day in the U.S.

compared to the prior year quarter.

Automotive segment sales increased primarily due to the benefit of prior year acquisitions.

Industrial segment sales declined due primarily to one less selling day in the U.S., partially offset by modest improvements in market conditions.

The Purchasing Managers’ Index ("PMI"), a measure of U.S.

manufacturing trends, showed sequential improvement in the early stages of the first quarter of 2025 compared to the contractionary levels we experienced during most of 2024.

PMI contracted in March, indicative that the overall operating environment remains uncertain.

First quarter net income declined 21.9% year over year, primarily due to lost profit from one less selling day in the U.S., higher depreciation and interest expenses from planned investments, lower pension income due to a change in our investing strategy related to our planned U.S.

pension plan termination, and certain foreign currency headwinds.

These factors were partially offset by a 120 basis point gross margin improvement year-over-year, driven by the continued execution of our strategic pricing and sourcing initiatives as well as contributions from prior-year acquisitions.

These factors were also offset by $27 million in benefits in the quarter from the ongoing execution of our global restructuring to improve business efficiency.

First quarter restructuring and other costs totaled $55 million, a decrease from $83 million in the prior year period, which included a voluntary retirement program.

tariffs implemented in March 2025 did not materially impact our first quarter results.

While the long-term effects remain uncertain, we continue to closely monitor the evolving tariff policy environment which presents a mix of impacts, with the potential for higher pricing, as well as higher product and operating costs.

We have not updated our outlook for 2025 given the lack of clarity in the external environment with respect to the implementation of tariffs globally.

Risk Factors for a discussion regarding tariff-related risks.

Our first quarter results of operations are summarized below for the three months ended March 31, 2025 and 2024.

Three Months Ended March 31,

(in thousands) $ % of Sales $ % of Sales $ Change % Change

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Net income $ 194,392 3.3 % $ 248,894 4.3 % $ (54,502) (21.9) %

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands, except per share data) 2025 2024 $ Change % Change

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Adjusted diluted EPS $ 1.75 $ 2.22 $ (0.47) (21.2) %

Automotive segment EBITDA $ 285,507 $ 319,676 $ (34,169) (10.7) %

Industrial segment EBITDA $ 278,711 $ 278,987 $ (276) (0.1) %

Corporate EBITDA $ (91,125) $ (82,140) $ (8,985) 10.9 %

Total adjusted EBITDA $ 473,093 $ 516,523 $ (43,430) (8.4) %

Automotive segment profit $ 849,106 $ 915,771 $ (66,665) (7.3) %

Industrial segment profit $ 806,433 $ 828,166 $ (21,733) (2.6) %

Automotive segment margin 7.6 % 8.5 %

Industrial segment margin 12.2 % 12.3 %

For the three months ended September 30, 2024 our net sales increased 2.5% compared to 2023.

We experienced a 3.2% benefit from acquisitions and favorable impact of foreign currency and other of 0.1%, partially offset by a 0.8% decrease in comparable sales.

For the nine months ended September 30, 2024 our net sales increased 1.2% compared to 2023.

Automotive segment EBITDA margin 7.8 % 8.9 %

Industrial segment EBITDA margin 12.7 % 12.6 %

Corporate EBITDA margin (1.6) % (1.4) %

Total adjusted EBITDA margin 8.1 % 8.9 %

Our first quarter 2025 net sales increased 1.4% compared to the first quarter of 2024.

We experienced a 3.0% benefit from acquisitions, partially offset by a 0.8% decrease in comparable sales and a net unfavorable impact of foreign currency and other of 0.8%.

The decreases in comparable sales for the three and nine months ended September 30, 2024 are primarily driven by a sales decline in Industrial due to the impact of weaker macro-economic conditions on certain customers as discussed further below.

Third quarter comparable sales across both segments were disrupted by Hurricanes Beryl and Helene and the CrowdStrike outage, with an estimated total negative impact of 0.7%.

Automotive sales for the three months ended September 30, 2024 were $3.8 billion, an increase of 4.8% from 2023.

The increase reflects a 4.4% benefit from acquisitions which was primarily driven by acquired stores in our U.S.

Automotive business, including MPEC and Walker.

We also experienced a 0.2% increase in comparable sales and a 0.2% favorable impact of foreign currency and other.

We faced the effects of persistent soft demand in our U.S.

businesses, inclusive of sales disruption from Hurricanes Beryl and Helene and the CrowdStrike outage, and adverse economic conditions in our European automotive businesses .

Automotive sales for the nine months ended September 30, 2024 were $11.1 billion, an increase of 2.9% from 2023.

The increase reflects a 3.4% benefit from acquisitions, partially offset by a 0.1% decrease in comparable sales and a 0.4% unfavorable impact of foreign currency and other.

Year-over-year comparable sales also were impacted by persistent soft demand in the U.S., the hurricanes and CrowdStrike outage, and adverse economic conditions in Europe.

Net sales for the three months ended September 30, 2024 were $2.2 billion, a decrease of 1.2% compared to 2023.

The decrease reflects a 2.4% decrease in comparable sales and a 0.1% unfavorable impact of foreign currency, slightly offset by a 1.3% benefit from acquisitions.

Net sales for the nine months ended September 30, 2024 were $6.6 billion, a decrease of 1.5% compared to 2023.

The decrease reflects a 2.2% decrease in comparable sales and a 0.1% unfavorable impact of foreign currency, slightly offset by a 0.8% benefit from acquisitions.

The decrease in comparable sales for the three and nine months ended September 30, 2024 reflects continued softness in industrial production and the ongoing moderation in demand in several customer sectors.

In particular, we believe certain customers that are sensitive to the interest rate environment and political uncertainty are delaying capital expenditures.

We continue to experience an adverse macro-economic environment when compared to 2023, which caused slowing global industrial demand.

In addition, sales disruption from Hurricanes Beryl and Helene and the CrowdStrike outage had a negative impact on third quarter net sales.

The overall decrease in comparable sales was primarily driven by one less selling day in the U.S.

compared to the first quarter of 2024.

First quarter net sales for Automotive were $3.7 billion, an increase of 2.5% from 2024.

The increase consisted of a 4.1% benefit from acquisitions, partially offset by a 0.8% decrease in comparable sales and 0.8% net unfavorable impact of foreign currency and other, primarily due to the stronger U.S.

Our comparable sales decrease was primarily driven by one less selling day in the U.S.

compared to the first quarter of 2024.

We experienced a strong contribution from our prior year U.S.

acquisitions in Automotive, which enhanced our ability to serve customers.

First quarter net sales for Industrial were $2.2 billion, a decrease of 0.4% compared to 2024.

The decrease in sales reflects a 0.7% decrease in comparable sales, and a 1.0% unfavorable impact of foreign currency.

These were partially offset by a 1.3% benefit from acquisitions.

The decline in comparable sales was primarily due to one less selling day in the U.S.

compared to the first quarter of 2024, which impacted sales by 150 basis points, and was partially offset by improvements in market conditions.

Although conditions in the industrial market remained challenging, the Purchasing Managers’ Index (PMI) data showed sequential improvement from the contractionary levels at the end of 2024 to a level approaching expansionary territory in the early stages of the first quarter of 2025 before declining in March.

The impact of this shift on our sales results remains uncertain.

Gross Profit and Gross Margin

Gross profit for the three months ended September 30, 2024 increased $89 million, or 4.2%, compared to the same period of the previous year, and gross margin increased 0.6% to 36.8%.

The improvements are primarily driven by acquired stores in our U.S.

Automotive business.

Gross profit for the nine months ended September 30, 2024 increased $196 million, or 3.1% compared to the same period in the prior year, and gross margin improved 0.7% to 36.4%.

Approximately 50% of these improvements are due to acquired businesses .

The remainder of the improvements primarily reflect the positive contributions of our strategic category management and sourcing initiatives.

We continue to invest in enhancing technology to generate better pricing data and analytics which allows us to shift pricing dynamics across each market we serve.

Gross profit increased $99 million, or 4.8%, during the first quarter of 2025 compared to last year, and gross margin increased 120 basis points to 37.1% compared to that same period of the previous year.

These increases primarily reflect the benefit of acquired businesses and our ongoing pricing and sourcing initiatives.

Selling, Administrative and Other Expenses

SG&A expenses represent 28.8% of sales for the three months ended September 30, 2024, an increase of 2.2% from the prior year.

For the nine months ended September 30, 2024, SG&A expenses represent 27.9% of sales, an increase of 1.4% from the prior year.

We estimate operating cost inflation, including personnel costs and rent, caused approximately 40% and 70% of the increase for the three and nine month periods, respectively.

Increased operating costs from owning more U.S.

automotive stores contributed approximately 25% of the increase in each period.

We also incurred acquisition and integration costs and costs related to increased investments in technology, among other things.

SG&A expenses increased $135 million, or 8.6%, during the first quarter of 2025 compared to the first quarter of 2024.

Of the 8.6% increase, 6.0% was from acquisitions and 2.6% was from other cost increases.

We incurred higher SG&A expenses due to acquisitions, primarily increased personnel and rent costs from operating the U.S.

automotive stores we acquired in 2024.

Additionally, we incurred $14 million of lease and other exit costs related to the ongoing integration of those stores.

We expect the SG&A impact of acquired stores to diminish over time as we realize the anticipated synergies from these acquisitions.

The remaining SG&A increase is primarily due to planned salary and merit adjustments and increased rent from lease renewals in a higher rate environment, partially offset by $27 million in benefits from our global restructuring.

We have taken extensive actions to adjust our cost structure through our global restructuring.

SG&A expenses as a percentage of sales increased to 29.1% of sales in the first quarter of 2025 compared to 27.2% last year, but improved sequentially from the fourth quarter of 2024.

The 190 basis point increase was primarily driven by increased SG&A expenses from acquisitions and other items, as discussed above, and cost deleveraging from lower organic sales growth.

Restructuring and Other Costs

For the three and nine months ended September 30, 2024, we incurred $41 million and $161 million, respectively, of costs related to the global restructuring initiative that was approved in February 2024.

We recognized approximately $25 million of benefits related to this global restructuring initiative for the nine months ended September 30, 2024.

Refer to the Restructuring Footnote in the Notes to Condensed Consolidated Financial Statements for more information on our global restructuring initiative.

We incurred $55 million of restructuring and other costs during the first quarter of 2025 as part of our global restructuring which was approved and initiated in February 2024 and remains on track to deliver an improved overall cost structure.

Restructuring and other costs decreased $28 million compared to the prior year period, reflecting the completion of certain initiatives in 2024, including a voluntary retirement program.

For additional details, refer to the Restructuring Footnote in the Notes to Condensed Consolidated Financial Statements.

Depreciation and Amortization

Depreciation and amortization expenses increased $22 million related to ongoing investments in technology and supply chain initiatives.

Interest Expense

Interest expense for the three months ended September 30, 2024 increased $12 million, or 75.8%, compared to the same period of the previous year, due to increased borrowing to fund acquisitions, including the senior notes issued in August 2024.

Segment Profit

For the three months ended September 30, 2024, Automotive segment profit decreased 18.6% compared to the same period in 2023, and Automotive segment profit margin decreased to 6.9% compared to 8.9% in the same period last year.

We estimate that 40% of these declines relates to persistent segment operating cost pressures from ongoing inflation, particularly personnel costs and rent.

The remainder primarily reflects the effects of rising freight costs, technology investments and changes in sales mix.

Partially offsetting the declines was a 20 basis point segment profit margin benefit related to acquisitions, particularly acquired stores in U.S.

Automotive such as MPEC and Walker.

For the nine months ended September 30, 2024, Automotive segment profit decreased 7.3% compared to the same period in 2023, and Automotive segment profit margin decreased to 7.6% compared to 8.5% for the same period last year, based on similar inflationary and other segment operating cost pressures and sales mix changes.

For the three months ended September 30, 2024, Industrial segment profit decreased 8.5% compared to the same period in 2023 and Industrial segment profit margin was 11.9%, down 1.0% from the prior year.

These declines primarily relate to persistent segment operating cost pressures from inflation, particularly personnel costs and rent.

For the nine months ended September 30, 2024, Industrial segment profit decreased 2.6% compared to the same period last year and Industrial segment profit margin decreased to 12.2% compared to 12.3% in the same period in the previous year, based on similar inflationary segment operating cost pressures.

Our effective income tax rate for the three and nine months ended September 30, 2024 was 23.9% and 23.6%, respectively, as compared to 24.5% for the same periods in 2023.

The rate decrease is primarily due to expanded investment and domestic credit benefits.

Net Income, Diluted Earnings Per Share and Adjusted EBITDA

For the three months ended September 30, 2024, net income was $227 million, a decrease of 35.5% compared to net income of $351 million for the same three month period of the prior year.

On a per share diluted basis, net income was $1.62, a decrease of 34.9% compared to $2.49 in 2023.

These decreases are primarily due to $41 million of costs related to the global restructuring initiative, $4 million of acquisition and integration costs, persistent cost pressures from personnel costs and rent inflation, increased costs and depreciation from ongoing technology investments and increased interest costs from borrowings to fund acquisitions.

For the nine months

ended September 30, 2024, net income was $771 million, a decrease of 22.9% compared to net income of $1.0 billion for the same nine month period of the prior year.

On a per share diluted basis, net income was $5.51, a decrease of 22.2% compared to $7.08 in 2023.

These decreases are primarily due to $161 million of costs related to the global restructuring initiative, $29 million of acquisition and integration costs, persistent cost pressures from personnel costs and rent inflation, increased costs and depreciation from ongoing technology investments and increased interest costs from borrowings to fund acquisitions.

Adjusted net income for the three months ended September 30, 2024, which excludes the effects of restructuring and other costs and acquisition and integration costs, was $263 million, a decrease of 25.1% compared to net income of $351 million for the same period of 2023.

On a per share diluted basis, adjusted net income was $1.88, a decrease compared to diluted earnings per share of $2.49 last year.

Third quarter 2024 adjusted EBITDA was $477 million, a decrease of 15.6% from $565 million in 2023.

Adjusted net income, which excludes the effects of restructuring and other costs and acquisition and integration costs, for the nine months ended September 30, 2024 was $915 million, a decrease of 8.4% compared to net income of $1.0 billion in 2023.

On a per share diluted basis, adjusted net income was $6.55, a decrease of 7.5% compared to diluted earnings per share of $7.08 last year.

Third quarter 2024 adjusted EBITDA was $1.6 billion, a decrease of 4.4% from EBITDA of $1.6 billion from 2023.

The decreases in these adjusted measures reflect the negative effects of lost expense leverage on comparable sales declines combined with increased costs, as discussed more fully in the commentary above.

Corporate Expense and other Segment Reconciling items

This section explains the material reconciling items displayed in the Segment Footnote in the Notes to Condensed Consolidated Financial Statements, that are not discussed above including corporate expense and other unallocated costs.

Corporate expense reflects costs related to headquarter's broad based support to our business units and other costs that are managed centrally and not allocated to business segments.

These include personnel and other costs for company-wide functions such as executive leadership, human resources, technology, cybersecurity, legal, corporate finance, internal audit, and risk management, as well as product liability costs and A/R Sales Agreement fees.

Our operational objective is to maintain Corporate expenses within a range of 1.5% to 2.0% of net sales.

Corporate expense amounted to $114 million and $90 million in the third quarter of 2024 and 2023, respectively.

For the nine months ended September 30, 2024 corporate expense amounted to $284 million, or 1.6% of net sales, in 2024, compared to $258 million, or 1.5% of net sales, in 2023.

Corporate expenses increased in both periods primarily due to the effects of persistent inflation on personnel costs and ongoing investments in technology.

Depreciation and amortization expenses increased $25 million related to planned investments in technology and supply chain initiatives.

Non-Operating Expenses and Income

We incurred $36 million in net non-operating expenses for the three months ended March 31, 2025, a $42 million change from $5 million in net non-operating income in the prior year period.

This category primarily includes net interest expense, pension and investment income, foreign currency gains and losses, and fees associated with our Accounts Receivable Sales Agreement ("A/R Sales Agreement").

The $42 million expense increase includes the effects of a $20 million increase in net interest expense in 2025, due to increased borrowings, and a $13 million decrease in pension income as a result of changes in expected returns due to the planned termination of our U.S.

pension plan.

Our effective income tax rates were 22.7% and 23.5% for first quarter 2025 and 2024, respectively.

The rate decrease from 2024 is primarily due to a shift in the mix of earnings across our businesses due to one-time U.S.

pension transaction costs partially offset by routine tax position adjustments.

Net Income and Adjusted Net Income

First quarter 2025 net income was $194 million, a decrease of 21.9% compared to net income of $249 million for the same three month period of the prior year.

On a per share diluted basis, net income was $1.40, a decrease of 21.3% compared to $1.78 in the prior year period.

These decreases are primarily due to lost profit from one less selling day in the U.S.

compared to the prior year period, higher depreciation and interest expenses from ongoing investments, lower pension income due to a change in our investing strategy related to our planned U.S.

pension plan termination, and certain foreign currency headwinds.

First quarter 2025 adjusted net income was $243 million, a decrease of 21.8% compared to the prior year period.

On a per share basis, first quarter 2025 adjusted net income was $1.75, a decrease of 21.2% compared to $2.22 in the prior year period.

First quarter 2025 adjusted EBITDA was $473 million, a decrease of 8.4% from the prior year period.

The decreases in these measures are primarily the result of softer market conditions and one less sales day in the first quarter of 2025 compared to the same period last year.

Segment EBITDA

Automotive EBITDA decreased $34 million, or 10.7%, in the first quarter compared to the prior year period, and Automotive EBITDA margin decreased to 7.8% compared to 8.9% in the prior year period, driven by the following factors.

Automotive segment sales grew $91 million, or 2.5%, in the first quarter of 2025 due to contributions from prior year strategic acquisitions of independent stores in our U.S.

business, partially offset by one less selling day.

Gross profit increased $96 million, or 7%, and gross margin improved 160 basis points primarily due primarily to the acquisitions in our U.S.

business and strategic sourcing initiatives.

Our gross profit improvement was offset by rising operating expenses.

Operating expenses increased $130 million, mainly driven by increased personnel and rent costs, which increased primarily from operating the U.S.

stores we acquired in 2024.

We expect the expense impact of acquired stores to diminish over time as we realize the anticipated synergies from these acquisitions.

The increase in operating expenses was primarily due to acquisitions, however declines in Automotive EBITDA and EBITDA margin largely were driven by loss of expense leverage due to lower organic sales growth in our existing businesses.

Industrial EBITDA and EBITDA margin both remained flat in the first quarter compared to 2024.

Industrial segment sales declined $8 million, or 0.4%, primarily driven by a decline of 0.7% in comparable sales due to one less selling day in the U.S.

compared to the prior year period, partially offset by a 1.3% benefit from acquisitions.

Gross profit and operating expenses in our Industrial segment remained largely unchanged compared to the prior year.

These results highlight continued benefits of our global restructuring efforts within the Industrial segment, enabling effective cost management in an uncertain economic environment.

Corporate EBITDA and Other Segment Reconciling items

Corporate EBITDA amounted to a loss of $91 million, or 1.6% of net sales, for the three months ended March 31, 2025, compared to a loss of $82 million, or 1.4% of net sales, in for the three months ended March 31, 2024.

We continue to consolidate certain back-office functions at Corporate to streamline operations and drive improvements.

Our operational objective is to maintain Corporate EBITDA within a range of 1.5% to 2.0% of net sales.

Corporate EBITDA loss increased primarily due to increased personnel costs and ongoing investments in technology.

Other unallocated costs represent restructuring and other costs and acquisition and integration related costs and other.

These increased year-over-year due to the global restructuring initiative that was approved in February 2024 and significantly increased acquisition activity in 2024.

These decreased year-over-year due to the aforementioned decrease in costs related to the global restructuring initiative that was approved in February 2024.

EBITDA was $404 million for the three months ended March 31, 2025, a decrease of 6.7% from $433 million during the prior year period.

Adjusted EBITDA was $473 million in the first quarter of 2025, a decrease of 8.4% from $517 million during the prior year period.

Decreases in adjusted EBITDA were primarily driven by lost profit from one less selling day in the U.S.

compared to the prior year period, higher depreciation and interest

expenses from planned investments, lower pension income due to a change in our investment strategy related to our planned U.S.

pension plan termination, and certain foreign currency headwinds.

Adjusted net income, adjusted diluted EPS, EBITDA and adjusted EBITDA are non-GAAP measures (see table below for reconciliations to the most directly comparable GAAP measures).

Non-GAAP Financial Measures

Adjusted net income, adjusted diluted EPS, adjusted EBITDA, and adjusted EBITDA for each segment and Corporate are non-GAAP measures (see table below for reconciliations to the most directly comparable GAAP measures).

The following tables set forth reconciliations of net income and diluted EPS to adjusted net income and adjusted diluted EPS, respectively, to account for the impact of adjustments.

We also include reconciliations from net income to adjusted EBITDA, segment profit to segment EBITDA and adjusted EBITDA for each segment and Corporate.

We also include a reconciliation from net income to adjusted EBITDA.

We believe that the presentation of adjusted net income, adjusted diluted EPS, and adjusted EBITDA, which are not calculated in accordance with GAAP, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to both management and investors that is indicative of our core operations.

We consider these metrics useful to investors because they provide greater transparency into management’s view and assessment of our ongoing operating performance by removing items management believes are not representative of our operations and may distort our longer-term operating trends.

In the case of adjusted EBITDA by segment and Corporate, we believe this additional metric is useful to investors as it provides further insight into the performance of our segments and Corporate.

For example, for the three months ended March 31, 2025, certain of the non-GAAP metrics contained herein exclude costs relating to our global restructuring initiative and acquisition of acquired independent automotive stores, which are one-time events that do not recur in the ordinary course of business.

We believe the non-GAAP metrics included herein also enhance the comparability of our results from period to period and with our competitors, as well as to show ongoing results from operations distinct from items that are infrequent or not associated with our core operations.

For example, for the three and nine months ended September 30, 2024, adjusted net income, adjusted EBITDA and adjusted diluted earnings per share exclude costs relating to our global

restructuring initiative and acquisitions of MPEC and Walker.

We do not, nor do we suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information.

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2025 2024

6 unchanged sentences

The table below represents amounts per common share assuming dilution:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands, except per share data) 2025 2024

6 unchanged sentences

Weighted average common shares outstanding – assuming dilution 139,200 140,096

(1) Amount reflects costs related to the global restructuring initiative which includes a voluntary retirement offer in the U.S., inventory liquidation costs, and rationalization and optimization of certain distribution centers, stores and other facilities.

(2) Amount primarily reflects integration costs related to the completion of the acquisitions of MPEC in April 2024 and Walker in July 2024, including professional services costs, personnel costs, and lease and other exit costs.

(1) Amount reflects costs related to the global restructuring initiative which includes a voluntary retirement offer in the U.S.

in 2024, and rationalization and optimization of certain distribution centers, stores and other facilities.

(2) Amount primarily reflects lease and other exit costs related to the ongoing integration of acquired independent automotive stores.

(3) We determine the tax effect of non-GAAP adjustments by considering the tax laws and statutory income tax rates applicable in the tax jurisdictions of the underlying non-GAAP adjustments, including any related valuation allowances.

For the three and nine months ended September 30, 2024, we applied the statutory income tax rates to the taxable portion of all of our adjustments, which resulted in a tax impact of $9 million and $46 million.

For the three months ended March 31, 2025, we applied the statutory income tax rates to the taxable portion of all of our adjustments, which resulted in a favorable tax impact of $20 million.

The table below represents a reconciliation from GAAP net income to adjusted EBITDA:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2025 2024

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The table below clarifies where the adjusted items are presented in the Condensed Consolidated Statements of Income:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2025 2024

Cost of goods sold $ — $ — $ 7,487 $ —

Selling, administrative and other expenses $ 14,035 $ —

1 unchanged sentence

Total adjustments $ 68,805 $ 83,042

The table below represents a reconciliation from segment profit to segment EBITDA and adjusted EBITDA:

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2024 2023 2024 2023

Segment Profit $ 262,195 $ 322,004 $ 849,106 $ 915,771

Depreciation 53,947 40,673 149,581 119,683

Automotive segment EBITDA 316,142 362,677 998,687 1,035,454

Segment Profit 258,753 282,807 806,433 828,166

Depreciation 8,534 7,644 24,801 21,774

Industrial segment EBITDA 267,287 290,451 831,234 849,940

Corporate expense (113,949) (90,257) (283,695) (257,822)

Depreciation 7,263 1,876 16,389 7,077

Other unallocated costs (1) 45,296 — 190,363 —

Corporate EBITDA (61,390) (88,381) (76,943) (250,745)

Total adjustments (1) (45,296) — (190,363) —

Corporate adjusted EBITDA (106,686) (88,381) (267,306) (250,745)

Adjusted EBITDA $ 476,743 $ 564,747 $ 1,562,615 $ 1,634,649

(1) Amounts are the same as adjustments included within the adjusted net income table above.

Financial Condition

Our cash balance was $1.1 billion as of September 30, 2024, a decrease of $24 million from December 31, 2023.

For the nine months ended September 30, 2024, we had net cash provided by operating activities of $1.1 billion, net cash used in investing activities of $1.2 billion and net cash used in financing activities of $125 million.

The cash provided by operating activities increased as compared to prior year primarily driven by changes in working capital.

We had $1.2 billion in net cash used for investing activities, consisting of capital expenditures and acquisitions and other investing activities of $1.3 billion, partially offset by proceeds from the sale of property, plant and equipment and the divestiture of businesses.

The financing activities consisted primarily of $411 million for dividends paid to our shareholders and $112 million of stock repurchases.

Our cash and cash equivalents balance was $420 million as of March 31, 2025, a decrease of $60 million from December 31, 2024.

For the three months ended March 31, 2025, we had net cash used in operating activities of $41 million, net cash used in investing activities of $155 million and net cash provided by financing activities of $129 million.

Cash from operations decreased mainly due to lower net income and working capital changes primarily driven by seasonal sales and purchasing trends.

We had $155 million in net cash used for investing activities primarily consisting of capital expenditures and acquisitions of $194 million, partially offset by $23 million in cash inflows from settling net investment hedges.

The financing activities consisted primarily of $772 million in net proceeds of commercial paper, partially offset by $500 million in commercial paper borrowings to repay the principal amount of our 1.75% Unsecured Senior Notes due February 1, 2025 and $134 million for dividends paid to our shareholders.

Accounts receivable increased $324 million, or 14.9%, from December 31, 2024.

Inventory increased $119 million, or 2.1%.

Accounts receivable and inventory were both impacted by third quarter increases in revenues and

What changed 10-Q

Item 2. Management’s Discussion and Analysis