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Item 2. Management’s Discussion and Analysis

2026-04-21 compared with 2025-10-21 · 168 added, 211 removed, 104 unchanged (78% 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, 2025.

The results of operations for the three and nine months ended September 30, 2025 are not necessarily indicative of results for the year ended December 31, 2025.

The results of operations for the three months ended March 31, 2026 are not necessarily indicative of results for the year ended December 31, 2026.

Forward-Looking Statements

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All statements in the future tense and all statements accompanied by words such as “expect,” “likely,” “outlook,” “forecast,” “preliminary,” “would,” “could,” “should,” “position,” “will,” “project,” “intend,” “plan,” “on track,” “anticipate,” “to come,” “may,” “possible,” “assume,” or similar expressions are intended to identify such forward-looking statements.

These forward-looking statements include our view of business and economic trends for the remainder of the year and our expectations regarding our ability to capitalize on these business and economic trends and our ability to successfully execute our strategic priorities, including our anticipated separation of Global Automotive and Global Industrial into two independent, publicly traded companies.

Senior officers may also make verbal statements to analysts, investors, the media and others that are forward-looking.

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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 direct and indirect impact of tariffs and other similar measures, as well as the 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 continuing unrest in the Middle East;

Such factors may include, among other things, changes in general economic conditions, including persistent inflation (including the direct and indirect impact of tariffs and retaliatory tariffs) or deflation, geopolitical uncertainty and unrest (including from the conflict in Iran) and declining consumer confidence;

our ability to successfully implement the separation of Global Automotive and Global Industrial and achieve the anticipated benefits of such transaction;

volatility in oil prices;

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

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;

significant costs, such as elevated fuel and freight expenses;

our ability to maintain compliance with our debt covenants;

our ability to successfully integrate acquired businesses into our operations and to realize the anticipated synergies and benefits;

our ability to successfully implement our business initiatives in our two business segments;

our ability to successfully implement our business initiatives in our three business segments;

slowing demand for our products;

the ability to maintain favorable supplier arrangements and relationships;

possible changes in collections of outstanding receivables due to the bankruptcy or financial difficulties of our customers or vendors;

changes in national and international legislation or government regulations, policies, or actions, including changes to import tariffs, environmental and social policy, infrastructure programs and privacy legislation, the U.S.

federal government shutdown, and their direct and indirect impact to us, our suppliers and customers;

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

changes in tax policies including those included in the One Big Beautiful Bill Act;

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competitive product, service and pricing pressures;

failure or weakness in our disclosure controls and procedures and internal controls over financial reporting;

failure or weakness in its disclosure controls and procedures and internal controls over financial reporting;

the uncertainties and costs of litigation;

disruptions caused by a failure or breach of our information systems, as well as other risks and uncertainties discussed in our 2024 Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 and from time to time in our subsequent filings with the SEC.

disruptions caused by a failure or breach of our information systems;

the success of our global restructuring efforts and the annualized cost savings arising therefrom, as well as other risks and uncertainties discussed in our 2025 Annual Report on Form 10-K and from time to time in our subsequent filings with the SEC.

Forward-looking statements speak only as of the date they are made, and we undertake no duty to update any forward-looking statements except as required by law.

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 ("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.

As of September 30, 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 64% of total revenues for the nine months ended September 30, 2025.

Our Industrial business operated in the U.S., Canada, Mexico, Australia, New Zealand, Indonesia and Singapore and accounted for 36% of total revenues during this period.

Genuine Parts Company ("GPC") is a leading global service provider of automotive and industrial replacement parts and value-added solutions.

We have 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 and strong cash flow generation.

For the three months ended March 31, 2026, we conducted business in North America, Europe and Australasia from more than 10,800 locations.

Our Automotive businesses operated in the U.S., Canada, France, the U.K., Ireland, Germany, Poland, the Netherlands, Belgium, Spain, Portugal, Australia and New Zealand and accounted for 63% of total revenues for the three months ended March 31, 2026.

Our Industrial business operated in the U.S.,

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Canada, Mexico, Australia, New Zealand, Indonesia and Singapore and accounted for 37% of total revenues during this period.

We are focused on being the preferred employer, supplier, and partner while delivering values to our shareholders.

This focus drives our strategic financial objectives which are growing revenue in excess of the market, improving operating margins, maintaining a healthy balance sheet, generating strong 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 optimizing supply chains and leveraging technology, we are empowering our teams with cutting-edge tools to continue our 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 a century.

Proposed Separation of Automotive and Industrial Businesses

On February 17, 2026, we announced our intention to separate the Company into two independent, publicly traded companies:

one comprising our Automotive Parts Group (“Global Automotive”) and the other comprising our Industrial Parts Group (“Global Industrial”).

The separation is targeted for completion in the first quarter of 2027, subject to certain customary and regulatory conditions.

Key Performance Indicators

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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, 2025.

Results of Operations

Our third quarter results reflect solid sales growth against a backdrop of weak market conditions, persistent cost inflation and elevated interest rates contributing to cautious customer activity.

Third quarter net sales increased 4.9% to $6.3 billion compared to the same prior year period.

Automotive sales growth was driven by increases in core sales, contributions from acquisitions, and a benefit from foreign currency.

Industrial sales growth was driven by increases in comparable sales and a modest contribution from acquisitions.

We achieved this Industrial sales growth despite the Purchasing Managers’ Index ("PMI"), a measure of U.S.

manufacturing trends, continuing to signal contraction during the quarter and an overall weak industrial backdrop.

In addition to this sales growth, gross profit margin expanded approximately 60 basis points when compared to the prior year period, reflecting the ongoing benefits from our strategic pricing, sourcing initiatives and acquisitions.

Despite sales growth and gross margin expansion, net income remained flat with the prior year period.

This was primarily due to higher depreciation and interest expense from planned investments and lower pension income due to a change in our investing strategy related to our planned U.S.

pension plan termination.

We also experienced higher SG&A expenses resulting from higher salary and healthcare costs and increased rent from lease renewals in a higher interest rate environment.

Lastly, restructuring and other costs totaled $67 million in the third quarter, up from $41 million in the prior year period, primarily driven by costs associated with facility closures and additional severance costs.

Our global restructuring program yielded $36 million in benefits in the third quarter, underscoring our commitment to enhancing business efficiency and adaptability amid a challenging economic environment.

Impact of Tariffs on Our Business

Trends Affecting our Business

We are navigating through several external factors that create uncertainty and volatility in our operating results.

These factors, and any changes to these factors, among others, could have a material adverse impact on customer behavior and our future operating results.

For additional discussion regarding these external factors and other risks, refer to Risk Factors in Item 1A of Part 1 within our Annual Report on Form 10-K for the year ended December 31, 2025.

Tariffs and Other Trade Policy Matters

We continue to monitor the global trade environment, including the tariffs on merchandise inventories sourced directly or indirectly from several countries, such as China, Canada, and Mexico, and their impact on our operations.

While the ongoing economic volatility continues to add uncertainty to our operating environment, we expect our balanced portfolio and global diversification will help mitigate potential disruptions.

Although the long-term effects remain uncertain, for the three or nine months ended September 30, 2025, tariffs did not have a material impact on our financial results.

See Part II, Item 1A.

Risk Factors in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 for further discussion regarding tariff-related risks.

Our third quarter results of operations are summarized below for the three and nine months ended September 30, 2025 and 2024.

Three Months Ended September 30,

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

Net sales $ 6,260,232 100.0 % $ 5,970,198 100.0 % $ 290,034 4.9 %

Cost of goods sold 3,918,830 62.6 % 3,771,757 63.2 % 147,073 3.9 %

Gross profit 2,341,402 37.4 % 2,198,441 36.8 % 142,961 6.5 %

Operating expense:

Selling, administrative and other expenses 1,805,928 28.8 % 1,722,400 28.8 % 83,528 4.8 %

Depreciation and amortization 127,475 2.0 % 106,036 1.8 % 21,439 20.2 %

Provision for doubtful accounts 6,871 0.1 % 7,119 0.1 % (248) (3.5) %

Restructuring and other costs 66,835 1.1 % 41,023 0.7 % 25,812 62.9 %

Total operating expense 2,007,109 32.1 % 1,876,578 31.4 % 130,531 7.0 %

Non-operating (income) expense:

Interest expense, net 40,342 0.6 % 27,818 0.5 % 12,524 45.0 %

Other 2,258 — % (3,548) (0.1) % 5,806 (163.6) %

Total non-operating (income) expense 42,600 0.7 % 24,270 0.4 % 18,330 75.5 %

Income before income taxes 291,693 4.7 % 297,593 5.0 % (5,900) (2.0) %

Income taxes 65,522 1.0 % 71,011 1.2 % (5,489) (7.7) %

Net income $ 226,171 3.6 % $ 226,582 3.8 % $ (411) (0.2) %

Three Months Ended September 30,

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

Diluted EPS $ 1.62 $ 1.62 $ — — %

Adjusted diluted EPS $ 1.98 $ 1.88 $ 0.10 5.3 %

Automotive segment EBITDA $ 334,704 $ 316,142 $ 18,562 5.9 %

Industrial segment EBITDA $ 285,015 $ 267,287 $ 17,728 6.6 %

Corporate EBITDA $ (93,374) $ (106,686) $ 13,312 (12.5) %

Total adjusted EBITDA $ 526,345 $ 476,743 $ 49,602 10.4 %

Automotive segment EBITDA margin 8.4 % 8.3 %

Industrial segment EBITDA margin 12.6 % 12.3 %

Corporate EBITDA margin (1.5) % (1.8) %

Total adjusted EBITDA margin 8.4 % 8.0 %

Nine Months Ended September 30,

During the three months ended March 31, 2026, tariffs continued to drive higher prices to our customers and cost inflation that impacted our gross margin and SG&A expenses.

We continue to manage these challenges through strategic pricing and sourcing initiatives, leveraging global supplier relationships and technology tools.

We are closely monitoring the recent U.S.

Supreme Court decision on February 20, 2026, invalidating certain tariffs imposed under the International Emergency Economic Powers Act.

The ultimate impact of this ruling, including whether importers may be entitled to refunds or previously paid tariffs, remains uncertain and subject to further legal proceedings.

Our exposure as the importer of record represents less than 0.5% of our total purchases.

Accordingly, we have not recorded any adjustments to our financial statements related to potential refunds, as any such amounts would not be material and are not reasonably estimable at this time.

We continue to take steps to manage tariff-related cost pressures;

however, these actions may not fully offset increased costs in future periods.

Middle East Geopolitical Developments

We are closely monitoring ongoing geopolitical tensions in the Middle East, including the recent conflict involving the United States, Israel and Iran, and related regional instability.

Although we have no operations in the Middle East, the ongoing geopolitical conflicts in the region could lead to significant disruption of fuel and energy supplies and increases in global fuel prices, which could heighten inflationary pressures, disrupt global supply chains and adversely impact consumer spending patterns.

We will continue to evaluate and take actions to mitigate any potential impacts on our business, results of operations and financial condition.

Although the long-term effects remains uncertain, these geopolitical conflicts did not have any material effects on our results of operations for the three months ended March 31, 2026.

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Results of Operations

Our performance in the first quarter of 2026 reflects solid sales across our business segments and benefits from our global restructuring initiatives while navigating a challenging operating environment.

Our first quarter net sales of $6.3 billion increased 6.8% year-over-year driven by comparable sales growth in our North America and Industrial segments, acquisitions and favorable impacts from foreign currency.

Gross margin continues to improve and increased 20 basis points year-over-year, driven by the continued execution of our strategic pricing and sourcing initiatives.

First quarter net income declined 3.0% year over year due to continued cost inflation in salaries and wages, rent, and freight.

In addition we incurred certain nonrecurring costs related to the planned separation of our Global Automotive and Global Industrial businesses, increased restructuring and other costs, and higher depreciation and interest expenses from planned investments.

Our first quarter results of operations are summarized below for the three months ended March 31, 2026 and 2025.

Three Months Ended March 31,

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

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Net income $ 188,535 3.0 % $ 194,392 3.3 % $ (5,857) (3.0) %

Nine Months Ended September 30,

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Three Months Ended March 31,

(in thousands, except per share data) 2026 2025 $ Change % Change

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Adjusted diluted EPS $ 1.77 $ 1.75 $ 0.02 1.1 %

Automotive segment EBITDA $ 958,203 $ 998,687 $ (40,484) (4.1) %

North America Automotive segment EBITDA $ 156,205 $ 146,995 $ 9,210 6.3 %

International segment EBITDA $ 144,845 $ 138,512 $ 6,333 4.6 %

Industrial segment EBITDA $ 314,120 $ 278,711 $ 35,409 12.7 %

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Total adjusted EBITDA $ 495,645 $ 473,093 $ 22,552 4.8 %

Automotive segment EBITDA margin 8.3 % 9.0 %

North America Automotive segment EBITDA margin 6.6 % 6.5 %

International Automotive segment EBITDA margin 9.1 % 9.9 %

Industrial segment EBITDA margin 13.6 % 12.7 %

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Total adjusted EBITDA margin 7.9 % 8.1 %

For the three months ended September 30, 2025, net sales increased 4.9% compared to 2024.

The increase was driven by a 2.3% increase in comparable sales, a 1.8% benefit from acquisitions and a favorable impact of foreign currency and other of 0.8%.

For the nine months ended September 30, 2025, net sales increased 3.2% compared to 2024.

The increase was driven by a 2.5% benefit from acquisitions, a 0.6% increase in comparable sales and a favorable impact of foreign currency and other of 0.1%.

Despite the challenging macroeconomic environment, our net sales for the three and nine months ended September 30, 2025, increased primarily due to growth in comparable sales and contributions from acquisitions.

Additionally, net sales for the nine month period were affected by one fewer selling day in the U.S.

compared to the prior year period.

Net sales for the three months ended September 30, 2025 for Automotive were $4.0 billion, an increase of 5.0% from 2024.

The increase is attributable to a 2.3% benefit from acquisitions, a 1.6% increase in comparable sales and a 1.1% favorable impact of foreign currency and other.

Net sales for the nine months ended September 30, 2025 for Automotive were $11.6 billion, an increase of 4.2% from 2024.

The increase is attributable to a 3.2% benefit from acquisitions and a 0.6% favorable impact of foreign currency and other.

Comparable sales were essentially flat when compared to 2024.

Our sales growth was driven by the contribution from our stores that were acquired over the last twelve months, which enhanced our ability to reach and serve our customers, and the favorable impact resulting from the strength of the Euro relative to the U.S.

Net sales for the three months ended September 30, 2025 for Industrial were $2.3 billion, an increase of 4.6% compared to 2024.

The increase in sales reflects a 3.7% increase in comparable sales and 1.1% benefit from acquisitions, partially offset by a 0.2% unfavorable impact of foreign currency.

Net sales for the nine months ended September 30, 2025 for Industrial were $6.7 billion, an increase of 1.6% compared to 2024.

The increase in sales reflects a 1.2% benefit from acquisitions and a 0.9% increase in comparable sales, partially offset by a 0.5% unfavorable impact of foreign currency.

This sales growth was achieved despite the Purchasing Managers’ Index ("PMI") continuing to signal contraction and an overall soft industrial backdrop throughout the quarter.

Net sales increased 6.8% in 2026 due to a 2.4% increase in comparable sales, a 3.1% benefit from favorable impact of foreign currency and other, and a 1.3% benefit from acquisitions.

We estimate that comparable sales benefited from approximately 3.0% of price inflation, including tariff related impacts.

North America Automotive net sales were $2.4 billion for the first quarter of 2026 , a 4.3% increase from the same period in 2025, primarily driven by a 2.2% increase in comparable sales and a 1.6% increase from acquisitions.

Our sales growth within North America Automotive reflected favorable demand trends in company-owned operations.

International Automotive net sales were $1.6 billion for the first quarter of 2026, a 13.2% increase from the same period in 2025, driven by 10.6% favorable foreign exchange impact and 2.3% contribution from acquisitions.

Industrial net sales were $2.3 billion for the first quarter of 2026, a 5.2% increase from the same period in 2025, primarily driven by a 3.9% increase in comparable sales.

Economic activity in the U.S.

manufacturing sector, measured by PMI, expanded throughout the first quarter of 2026 which supported sales demand in our Industrial segment.

Gross Profit and Gross Margin

Gross profit increased $143 million, or 6.5%, during the three months ended September 30, 2025 and gross margin increased 60 basis points to 37.4% compared to the prior year period.

Gross profit increased $386 million, or 6.0%, during the nine months ended September 30, 2025 and gross margin increased 100 basis points to 37.4% compared to the prior year period.

These increases primarily reflect the benefit of successful execution of our ongoing strategic pricing and sourcing initiatives and acquisitions completed in the prior year.

Selling, Administrative and Other ("SG&A") Expenses

SG&A expenses increased $84 million, or 4.8%, during the three months ended September 30, 2025 compared to the prior year period.

The 4.8% increase comprised 2.4% from acquisitions and 2.4% from other cost increases.

SG&A expenses increased $342 million, or 6.9%, during the nine months ended September 30, 2025 compared to the prior year period.

The 6.9% increase comprised 4.0% from acquisitions and 2.9% from other cost increases.

We continued to experience higher SG&A expenses primarily due to higher salaries and wages, rising healthcare costs, and increased rent from lease renewals in a higher interest rate environment.

We are managing the impact of the inflationary environment through our global restructuring initiatives, which we estimate had a $96 million benefit to SG&A for the nine months ended September 30, 2025.

SG&A expenses as a percentage of sales remained flat at 28.8% compared to the prior year period.

SG&A expenses as a percentage of sales increased 100 basis points to 28.9% of sales in the nine months ended September 30, 2025 compared to 27.9% last year.

The increase for the nine months ended September 30, 2025 was primarily driven by the items discussed above.

Gross profit increased $165 million, or 7.6%, with gross margin increasing 20 basis points to 37.3% during the first quarter of 2026 compared to the same prior year period.

These increases primarily reflect our ongoing pricing and sourcing initiatives, partially offset by the impact of inflation and tariffs on product costs.

Selling, Administrative and Other Expenses

SG&A expenses increased $147 million, or 8.6%, during the first quarter of 2026 compared to the same prior year period.

The growth in SG&A expenses was primarily due to inflationary cost pressures affecting salaries and wages, rent and freight and additional operating expenses linked to acquisitions.

Additionally, SG&A expenses increased due to foreign currency exchange impacts of approximately $70 million relative to the prior year period.

We also incurred costs of $18 million related to the planned separation of our Global Automotive and Global Industrial businesses.

We continue to actively mitigate the impact of the inflationary cost environment through our global restructuring initiatives, which we estimate had a $26 million benefit to SG&A for the three months ended March 31, 2026.

In response to sustained cost pressures, we executed targeted cost-control initiatives, including reductions in discretionary travel, limited merit-based compensation adjustments in certain regions, and the strategic deferral of select technology and other projects.

Restructuring and Other Costs

We incurred $67 million and $167 million of restructuring and other costs during the three months and nine months ended September 30, 2025, respectively, as part of our global restructuring plan which was approved and initiated in February 2024 and remains on track to better align our assets and further improve the efficiency of the business.

Restructuring and other costs increased by $26 million compared to the prior period, reflecting costs associated with facility closures and additional severance costs.

As part of our global restructuring plan, which was approved and initiated in February 2024, we incurred $58 million associated with facility closures and additional severance costs during the first quarter of 2026.

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

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Depreciation and Amortization

Depreciation and amortization expenses increased $21 million and $70 million for the three and nine months ended September 30, 2025, respectively, related to planned investments in technology and supply chain initiatives.

Depreciation and amortization expenses increased $16 million related to planned investments in technology and supply chain initiatives.

Non-Operating Expenses and Income

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").

We incurred $43 million in net non-operating expenses for the three months ended September 30, 2025, a $18 million change from $24 million in net non-operating expense in the prior year period.

The $18 million expense increase primarily includes the effects of a $13 million increase in net interest expense in 2025, due to increased borrowings, as well as 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.

For the nine months ended September 30, 2025, we incurred $117 million in net non-operating expenses, a $86 million change from the prior year period.

The $86 million expense increase primarily includes the effects of a $50 million increase in net interest expense in 2025, due to increased borrowings, and a $40 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 decreased to 22.5% for the three months ended September 30, 2025 compared to 23.9% for the three months ended September 30, 2024.

Our effective income tax rates were 23.4% and 23.6% for nine months ended September 30, 2025 and 2024, respectively.

The rate decrease for the three and nine month period is primarily due to comparative restructuring costs and expanded investments, which was partially offset by routine tax position adjustments.

The effective tax rates for the three and nine months ended September 30, 2025 consider the enactment of One Big Beautiful Bill Act ("OBBBA") on July 4, 2025, which did not have a material impact to income tax expense.

OBBBA is not expected to materially impact our 2025 annual effective tax rate.

Net Income and Adjusted Net Income

Net income was $226 million for the three months ended September 30, 2025, a decrease of 0.2% compared to net income of $227 million for the prior year period.

On a per share diluted basis, net income was $1.62 for both periods.

For the nine months ended September 30, 2025 net income was $675 million, a decrease of 12.4% compared to net income of $771 million for the prior year period.

On a per share diluted basis, net income was $4.85, a decrease of 12.0% compared to $5.51 in the prior year period.

Adjusted net income was $276 million for the three months ended September 30, 2025, an increase of 4.8% compared to the prior year period.

On a per share basis, the three months ended September 30, 2025 adjusted net income was $1.98, an increase of 5.3% compared to $1.88 in the prior year period.

Adjusted net income was $810 million for the nine months ended September 30, 2025, a decrease of 11.5% compared to the prior year period.

On a per share basis, the nine months ended September 30, 2025 adjusted net income was $5.82, a decrease of 11.1% compared to $6.55 in the prior year period.

For the three months ended September 30, 2025, net income remained flat with the prior year period despite a 4.9% increase in net sales compared to 2024.

This increase in net sales was largely offset by planned investments in the business generating higher depreciation and interest costs, lower pension income due to a change in our investing strategy related to our planned U.S.

pension plan termination, increased personnel and healthcare costs, and increased rent expenses.

For the nine months ended September 30, 2025, net income declined due to these same factors described above.

The period was further impacted by lost profit from one less selling day in the U.S.

compared to the prior year period.

These factors were partially mitigated by a 60 basis point gross margin improvement driven by the continued execution of ongoing strategic pricing and sourcing initiatives and acquisitions completed in the prior year.

Segment EBITDA

Automotive net sales increased 5.0% in the three months ended September 30, 2025, driven by both acquisitions and comparable sales growth in our North America, Australasia and Canadian businesses.

Net sales also benefited from favorable foreign currency effects within our European operations.

Additionally, gross margin

improved due to ongoing strategic pricing and sourcing initiatives and acquisitions completed in the prior year.

Our gross profit improvement was partially offset by continued inflationary pressures that resulted in operating expenses increasing 8.1%.

As a result, Automotive EBITDA increased 5.9%, and EBITDA margin was 8.4%, an increase of 10 basis points compared to the prior year period.

Automotive EBITDA decreased $40 million, or 4.1%, in the nine months ended September 30, 2025 compared to the prior year period, and Automotive EBITDA margin decreased to 8.3% compared to 9.0% in the prior year period.

The decrease in Automotive EBITDA and EBITDA margin were driven by persistent inflationary cost pressures from salaries and wages, healthcare expenses, rent, and freight.

Industrial net sales increased 4.6% in the three months ended September 30, 2025, primarily driven by a 3.7% increase in comparable sales and 1.1% benefit from acquisitions, partially offset by an unfavorable 0.2% impact of foreign currency translation.

Industrial EBITDA increased 6.6%, with EBITDA margin improving to 12.6% compared to 12.3% in the prior year period.

Our Industrial results reflect solid sales growth and operating discipline despite a challenging macroeconomic environment to offset inflation in costs.

For the nine months ended September 30, 2025, Industrial sales grew 1.6%, driven by a 1.2% benefit from acquisitions and 0.9% increase in comparable sales, partially offset by an unfavorable 0.5% impact of foreign currency translation.

EBITDA increased $21 million, or 2.5%, with EBITDA margin improving to 12.7% compared to 12.6% in the prior year period.

We incurred $41 million in net non-operating expenses during the first quarter of 2026, a $5 million change from $36 million in net non-operating expenses in the prior year period.

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

Our effective income tax rates were 23.2% and 22.7% for the first quarter 2026 and 2025, respectively.

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

pension transaction in 2025 offset by expanded domestic investments.

Net Income, Adjusted Net Income and Segment EBITDA

Net income was $189 million for the first quarter of 2026 , a decrease of 3.0% compared to $194 million during the first quarter of 2025.

Diluted earnings per share ("EPS") was $1.37 for the first quarter of 2026 , down $0.03 compared to $1.40 during the first quarter of 2025.

The year over year decline in net income is primarily due to persistent cost inflation, higher depreciation and amortization from ongoing investments, and higher interest expense.

This was partially offset by gross margin expansion and benefits from our global restructuring program and cost actions, which are discussed above in more detail.

Adjusted net income was $245 million for the first quarter of 2026, a increase of 0.6% compared to the same prior year period.

On a per share basis, adjusted net income was $1.77, an increase of 1.1% compared to $1.75 in the same prior year period.

North America Automotive

North America Automotive EBITDA increased $9 million, or 6.3%, compared to the same period in 2025, and EBITDA margin increased 10 basis points to 6.6% from 6.5%, driven by the following factors.

North America Automotive segment sales grew $98 million, or 4.3%, primaril y driven by an 2.2% increase in comparable sales and 1.6% benefit from acquisitions.

Gross profit increased $41 million or 4.7%, with gross margin expanding 20 basis points, primarily due to our strategic pricing, sourcing initiatives, and acquisitions.

These gains were partially offset by continued inflationary pressures on salaries and wages and freight costs, as well as the incremental expenses associated with acquired businesses.

The increase in EBITDA margin reflects our gross margin improvement and benefits of our global restructuring and cost control initiatives.

International Automotive

International Automotive EBITDA increased $6 million, or 4.6%, compared to the same prior year period, and EBITDA margin decreased 80 basis points to 9.1%, driven by the following factors.

International Automotive segment sales grew $185 million or 13.2% primarily driven by a 10.6% benefit from favorable foreign currency exchange.

Sales also benefited from a 2.3% contribution from acquisitions, and a 0.3% increase in comparable sales.

Gross profit increased $79 million, or 12.4%, in-line with the increase in sales.

Gross margin declined 30 basis points primarily due to the impact of businesses acquired after the first quarter of 2025 that operate at a slightly lower gross margin.

Our EBITDA margin declined due to a $73 million increase in operating expenses, driven primarily by inflationary pressures impacting personnel costs, rent and freight, including statutory minimum wage increases in certain jurisdictions.

These cost pressures were partially offset by the continued benefits of our global restructuring and disciplined cost control initiatives.

Industrial EBITDA increased 12.7% to $314 million compared to the same prior year period, and EBITDA margin increased 90 basis points year over year to 13.6%, driven by the following factors.

Industrial segment sales increased by $115 million or 5.2%, primarily driven by a 3.9% increase in comparable sales and a 1.0% benefit from foreign currency exchange.

Gross profit increased $45 million or 6.8%, with gross margin expanding 50 basis points due to the benefits of our strategic pricing and sourcing initiatives.

Our effective cost initiatives resulted in a 50 basis point improvement in operating expenses as a percentage of sales compared to the same prior year period.

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Corporate EBITDA and Other Segment Reconciling items

Corporate EBITDA amounted to a loss of $93 million, or 1.5% of net sales, for the three months ended September 30, 2025, compared to a loss of $107 million, or 1.8% of net sales, for the three months ended September 30, 2024.

Corporate EBITDA amounted to a loss of $263 million, or 1.4% of net sales, for the nine months ended September 30, 2025, compared to a loss of $267 million, or 1.5% of net sales, in the prior year period.

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

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

Corporate EBITDA primarily reflects costs related to our corporate headquarters' broad 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 asbestos-related product liability costs and A/R Sales Agreement fees.

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

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

EBITDA and Adjusted EBITDA

EBITDA was $460 million for the three months ended September 30, 2025, an increase of 6.5% from $431 million during the prior year period.

Adjusted EBITDA was $526 million for the three months ended September 30, 2025, an increase of 10.4% from $477 million during the prior year period.

EBITDA was $1.4 billion for the nine months ended September 30, 2025, a decrease of 0.5% from $1.4 billion during the prior year period.

Adjusted EBITDA was $1.5 billion for the nine months ended September 30, 2025, a decrease of 1.0% from $1.6 billion during the prior year period.

The increases in EBITDA and adjusted EBITDA for the three months ended September 30, 2025 are driven by core sales growth, despite continued soft market conditions and gross margin improvement driven by the continued execution of our strategic pricing and sourcing initiatives as well as contributions from prior-year acquisitions.

These factors were partially offset by lower pension income due to a change in our investing strategy related to our planned U.S.

pension plan termination, increased personnel and healthcare expenses and increased rent expenses.

The decreases in EBITDA and adjusted EBITDA for the nine months ended September 30, 2025 were primarily driven by lower pension income and the effects of rising costs, as previously described, as well as one less sales day in the current period when compared to the prior year period.

Corporate EBITDA amounted to a loss of $120 million, or 1.9% of net sales, for the three months ended March 31, 2026, compared to a loss of $91 million, or 1.6% of net sales, for the three months ended March 31, 2025.

The increased loss was primarily driven by inflationary pressures impacting personnel costs and health insurance.

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

For the first quarter of 2026, we incurred $58 million of restructuring and other costs and $18 million of separation costs.

EBITDA was $420 million for the three months ended March 31, 2026, an increase of 4.0% from $404 million during the prior year period.

Adjusted EBITDA was $496 million in the first quarter of 2026 , an increase of 4.8% from $473 million during the prior year period.

The increase in adjusted EBITDA was primarily driven by higher technology investments along with costs associated with our global business services initiative, which consolidated certain back-office finance functions at Corporate, allowing us to improve the efficiency of those activities.

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).

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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 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.

For example, 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.

For example, for the three months ended March 31, 2026, 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.

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) 2026 2025

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Restructuring and other costs (1) 57,732 54,770

Separation costs (2) 17,539 —

Acquisition and integration related costs and other (3) — 14,035

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Adjusted net income $ 244,551 $ 243,073

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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) 2026 2025

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Restructuring and other costs (1) 0.42 0.39

Separation costs (2) 0.13 —

Acquisition and integration related costs and other (3) — 0.10

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Weighted average common shares outstanding – assuming dilution 138,030 139,200

(1) Amount reflects costs related to the global restructuring initiative which includes severance, 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.

(1) Amount reflects costs related to our global restructuring initiative which includes employee severance and other termination benefits, and the rationalization and optimization of certain distribution centers, stores and other facilities.

(2) Amount primarily reflects legal and professional services and executive incentive plan costs related to the planned separation of our Global Automotive and Global Industrial businesses that was announced on February 17, 2026 and is targeted for completion in the first quarter of 2027.

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

(4) 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, 2025, we applied the statutory income tax rates to the taxable portion of all of our adjustments, which resulted in an unfavorable tax impact of $17 million and $46 million, respectively.

For the three months ended March 31, 2026, we applied the statutory income tax rates to the taxable portion of all of our adjustments, which resulted in a tax impact of $19 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) 2026 2025

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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) 2026 2025

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

Selling, administrative and other expenses $ 17,539 $ 14,035

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Total adjustments $ 75,271 $ 68,805

Financial Condition

Our cash and cash equivalents balance was $431 million as of September 30, 2025, a decrease of $49 million from December 31, 2024.

For the nine months ended September 30, 2025, we had net cash provided by operating activities of $511 million, net cash used in investing activities of $488 million and net cash used in financing activities of $94 million.

Cash from operations decreased mainly due to lower net income, accelerated tax payments, higher interest payments and working capital changes compared to prior year.

Working capital was primarily impacted by payments for strategic inventory investments we made in 2024 with deferred payment terms that did not repeat in 2025.

We had $488 million in net cash used for investing activities primarily consisting of capital expenditures and acquisitions of $532 million.

We had $94 million in net cash used in financing activities which comprised primarily of $543 million used to repay the principal amount of our 1.75% Unsecured Senior Notes and $421 million for dividends paid to shareholders, partially offset by $886 million in net proceeds from our commercial paper program.

Accounts receivable increased $457 million, or 20.9%, from December 31, 2024.

Inventory increased $359 million, or 6.5%.

Accounts receivable and inventory were both impacted by an increase in revenues and related product demand in the nine months ended September 30, 2025.

Accounts payable increased $177 million, or 3.0%, from December 31, 2024, in line with the increase in inventory.

W orking capital at any point in time is subject to many variables, including seasonality, inventory management and category expansion, the timing of cash receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates.

Total debt of $4.8 billion at September 30, 2025 increased $474 million, or 11.1%, from December 31, 2024.

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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Our financial position and cash flow performance have provided us with the capacity to invest in acquisitions, capital expenditures and technology to support our global growth strategy, as well as return value to our shareholders through dividends.

Our sources of capital consist primarily of cash flows from operations, supplemented as necessary by issuing commercial paper, private and public issuances of debt and bank borrowings.

On February 17, 2026, we announced a 3.2% increase to our regular quarterly cash dividend.

We have paid a cash dividend every year since going public in 1948, and 2026 marks the 70th consecutive year of increased dividends paid to shareholders.

Currently, we believe that our existing lines of credit, commercial paper program, and cash generated from operations will be sufficient to fund our operations for the foreseeable future, including working capital requirements, strategic acquisitions, dividends, share repurchases, capital expenditures, scheduled debt and interest payments, and income tax obligations.

Cash Flow Activity

For the three months ended March 31, 2026, net cash provided by operating activities was $63.9 million, primarily driven by an improvement in working capital, partly offset by payments related to tax planning initiatives.

We also had a $250 million benefit to operating cash flow from our A/R Sales Agreement.

Changes in working capital can cause cash from operations to vary significantly period over period depending on factors such as the timing of customer payments, inventory purchases, vendor payments, tax payments, and fluctuations in foreign exchange rates.

During the first quarter of 2026, we also continued to invest in our business through strategic acquisitions and capital expenditures to broaden our product and service offerings, improve our business operations and expand our global footprint.

In the first quarter of 2026, we deployed $141.7 million for dividends, $97.6 million for capital expenditures, and $13.8 million for acquisitions.

In addition, we had net proceeds of debt of approximately $218.0 million, which includes $263.5 million under our commercial paper program to support these investments.

A summary of our condensed consolidated statements of cash flows is as follows:

Three Months Ended March 31,

(In thousands) 2026 2025 $ Change % Change

Operating activities 63,916 (40,827) $ 104,743 (256.6) %

Investing activities (92,910) (154,818) $ 61,908 40.0 %

Financing activities 56,713 128,742 $ (72,029) 55.9 %

Liquidity and Capital Resources

As of September 30, 2025, we had $431 million of cash and cash equivalents, as well as $2 billion in undrawn capacity on our Revolving Credit Agreement, before giving effect to commercial paper borrowings.

Our liquidity is supported by cash generated from operating activities and available borrowings.

As of March 31, 2026, total liquidity was $1.3 billion, consisting of $500 million in cash and $838 million of available capacity under the company's $2.0 billion Revolving Credit Agreement.

This reflects $554 million drawn on the revolver and $607 million outstanding under our commercial paper program.

From time to time, we may enter into other credit facilities or financing arrangements to provide additional liquidity and to manage against foreign currency risk.

We currently believe that the existing lines of credit, commercial paper program, and cash generated from operations will be sufficient to fund anticipated operations for the foreseeable future.

On September 29, 2025, a supplier to our global automotive segment filed a voluntary petition for relief under Chapter 11 of the U.S.

Bankruptcy Code.

Purchases from this supplier represent approximately 3% of our global automotive segment SKUs and approximately 3% of our global automotive segment sales on an annualized basis.

As of the date of this report, the supplier is operating and has continued to supply us with products and our focus remains on ensuring our supply chain continuity, and inventory availability for our customers.

In addition, we are assessing our financial exposure related to this supplier, including amounts owed to us for vendor incentive compensation and other receivables outstanding as of the petition date.

Depending on the course of the bankruptcy proceedings, or the changes in operational capabilities of this supplier, we may need to seek alternative partners for inventory, which could result in higher costs, changes in product availability, extended lead times, and potential write‑downs or losses related to prepetition receivables.

While we currently expect to meet customer demand in the near term based on existing inventories and confirmed purchase orders, the bankruptcy proceedings present uncertainties that could adversely affect our operations, financial condition, and results of operations.

As announced in 2024, our Board of Directors approved the termination of the frozen U.S.

qualified defined benefit pension plan, effective September 30, 2024.

Plan settlement will occur in the fourth quarter of 2025.

In connection with the anticipated settlement, we adjusted our investment strategy for our pension assets which resulted in lower pension income.

As a result of this transaction, we expect to recognize a one-time pre-tax pension settlement charge in the range of $650 million to $750 million in the fourth quarter of 2025.

On February 18, 2025, we announced a 3% increase in the regular quarterly cash dividend for 2025.

Our Board of Directors increased the cash dividend payable to an annual rate of $4.12 per share compared with the prior year dividend of $4.00 per share.

We have paid a cash dividend every year since going public in 1948, and 2025 will mark the 69th consecutive year of increased dividends paid to shareholders.

In March 2025, we amended our Unsecured Revolving Credit Facility to expand the borrowing capacity from $1.5 billion to $2.0 billion and extend the maturity date to March 20, 2030.

We also amended our commercial paper program to expand the borrowing capacity from $1.5 billion to $2.0 billion.

As of September 30, 2025, we had no outstanding borrowings under the Unsecured Revolving Credit Facility.

Outstanding borrowings under our commercial paper program totaled $892 million, of which $500 million was used to repay the principal amount of our 1.75% Unsecured Senior Notes that matured on February 1, 2025.

The net proceeds of the remaining borrowings are expected to be used for general corporate purposes.

We have a strong cash position and solid financial strength to pursue strategic growth opportunities through disciplined, strategic capital deployment.

Our key priorities include the reinvestment in our businesses through capital expenditures, mergers and acquisitions, the dividend and share repurchases.

We have plans for additional investments in our businesses to drive growth, improve efficiencies and productivity, and drive shareholder value.

At March 31, 2026, we had $5.0 billion of total debt outstanding.

Approximately $1.3 billion of this debt includes unsecured Senior Notes which contain covenants related to a maximum debt to EBITDA ratio and certain limitations on additional borrowings.

Additionally, we have an A/R Sales Agreement to sell short-term receivables from certain customer trade accounts to the unaffiliated financial institutions on a revolving basis.

On January 2, 2026, we amended our A/R Sales Agreement to increase the facility capacity from $1 billion to $1.25 billion and extended the agreement's maturity through January 8, 2027.

We also facilitate a voluntary supply chain finance program to provide certain of our suppliers with the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions.

Refer to the AR Sales Agreement Footnote and the Supply Chain Finance Footnote in the Notes to Condensed Consolidated Financial Statements for more information.

We expect to be able to continue to borrow funds at reasonable rates over the long term.

At September 30, 2025, our total average cost of debt was 3.93%, and we remain in compliance with all covenants connected with our borrowings.

Any failure to comply with our debt covenants or restrictions could result in a default under our financing arrangements or could require us to obtain waivers from our lenders for failure to comply with these restrictions.

At March 31, 2026, our total average cost of debt was 3.98%, and we remain in compliance with all covenants connected with our borrowings.

Any failure to comply with our debt covenants or restrictions could result in a default under our financing

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arrangements or could require us to obtain waivers from our lenders for failure to comply with these restrictions.

The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could create cross defaults under other debt arrangements and have a material adverse effect on our business, financial condition, results of operations and cash flows.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis