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Item 2. Management’s Discussion and Analysis

2026-07-21 compared with 2026-04-21 · 184 added, 104 removed, 168 unchanged (63% 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 months ended March 31, 2026 are not necessarily indicative of results for the year ended December 31, 2026.

The results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of results for the year ended December 31, 2026.

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 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;

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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 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;

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 related uncertainties, and their impact to us, our suppliers and customers;

changes in tax policies;

volatile exchange rates;

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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.

For the six months ended June 30, 2026, we conducted business in North America, Europe and Australasia from more than 10,800 locations.

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.

We are focused on being the preferred employer, supplier, and partner while delivering value 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.

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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.

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

Middle East Geopolitical Developments

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

The conflict has and could continue to lead to significant disruption of fuel and energy supplies and increases in global fuel prices, heightened inflationary pressures, disruptions in global supply chains and adverse impacts on customer spending patterns.

While we have no operations in the Middle East, the increase in fuel and related supply chain costs attributable to the conflict together with their effects on customer spending negatively impacted income before income taxes by approximately $20 million during the three months ended June 30, 2026, primarily in our International Automotive segment.

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

The long-term effects of the conflict remain uncertain.

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.

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

During the six months ended June 30, 2026, tariffs continued to drive higher product costs and customer pricing, impacting 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.

On February 20, 2026, the U.S.

Supreme Court issued a decision invalidating certain tariffs imposed under the International Emergency Economic Powers Act.

The financial impact of this ruling remains subject to ongoing administrative processes, including the extent and timing of refunds from U.S.

Customs and Border Protection ("CBP").

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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During the second quarter of 2026, we submitted refund claims related to these tariffs.

The claims submitted and refunds received through June 30, 2026 were not material to our condensed consolidated financial statements.

While we continue to take steps to manage tariff-related cost pressures, these actions may not fully offset increased costs in future periods.

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,

Our second quarter performance continued to reflect solid sales across our business segments and benefits from our global restructuring initiatives, despite a challenging operating environment.

Net sales increased 6.0%, with comparable sales growth across all segments, along with contributions from acquisitions and foreign currency.

Additionally, comparable sales growth sequentially improved from the first quarter across all segments.

During the second quarter, we incurred additional restructuring and other costs and costs associated with our separation, which contributed to a 10.7% decline in net income.

Excluding these items, adjusted net income increased 1.5%, driven by higher gross profit from increased sales, pricing and sourcing initiatives, and benefits from our global restructuring program.

Our results of operations are summarized below for the three and six months ended June 30, 2026 and 2025.

Three Months Ended June 30,

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

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Other (3,294) (0.1) % (1,930) — % (1,364) 70.7 %

Total non-operating (income) expense 40,878 0.7 % 36,308 0.6 % 4,570 12.6 %

Total non-operating expense 42,506 0.7 % 38,281 0.6 % 4,225 11.0 %

Income before income taxes 293,830 4.5 % 338,557 5.5 % (44,727) (13.2) %

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Net income $ 227,558 3.5 % $ 254,880 4.1 % $ (27,322) (10.7) %

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Three Months Ended March 31,

Three Months Ended June 30,

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

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North America Automotive segment EBITDA $ 208,328 $ 196,500 $ 11,828 6.0 %

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

International Automotive segment EBITDA $ 149,991 $ 141,492 $ 8,499 6.0 %

Industrial segment EBITDA $ 316,447 $ 288,138 $ 28,309 9.8 %

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Total adjusted EBITDA margin 8.7 % 8.9 %

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.

Six Months Ended June 30,

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

Net sales $ 12,801,891 100.0 % $ 12,030,494 100.0 % $ 771,397 6.4 %

Cost of goods sold 7,992,220 62.4 % 7,532,422 62.6 % 459,798 6.1 %

Gross profit 4,809,671 37.6 % 4,498,072 37.4 % 311,599 6.9 %

Operating expense:

Selling, administrative and other expenses 3,774,338 29.5 % 3,480,874 28.9 % 293,464 8.4 %

Depreciation and amortization 265,744 2.1 % 238,453 2.0 % 27,291 11.4 %

Provision for doubtful accounts 18,101 0.1 % 13,480 0.1 % 4,621 34.3 %

Restructuring and other costs 128,881 1.0 % 100,482 0.8 % 28,399 28.3 %

Total operating expense 4,187,064 32.7 % 3,833,289 31.9 % 353,775 9.2 %

Non-operating (income) expense:

Interest expense, net 89,753 0.7 % 77,427 0.6 % 12,326 15.9 %

Other (6,369) — % (2,838) — % (3,531) 124.4 %

Total non-operating expense 83,384 0.7 % 74,589 0.6 % 8,795 11.8 %

Income before income taxes 539,223 4.2 % 590,194 4.9 % (50,971) (8.6) %

Income taxes 123,130 1.0 % 140,922 1.2 % (17,792) (12.6) %

Net income $ 416,093 3.3 % $ 449,272 3.7 % $ (33,179) (7.4) %

Six Months Ended June 30,

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

Diluted EPS $ 3.01 $ 3.23 $ (0.22) (6.8) %

Adjusted diluted EPS $ 3.92 $ 3.84 $ 0.08 2.1 %

North America Automotive segment EBITDA $ 364,533 $ 343,495 $ 21,038 6.1 %

International Automotive segment EBITDA $ 294,836 $ 280,004 $ 14,832 5.3 %

Industrial segment EBITDA $ 630,567 $ 566,849 $ 63,718 11.2 %

Corporate EBITDA $ (227,338) $ (169,757) $ (57,581) 33.9 %

Total adjusted EBITDA $ 1,062,598 $ 1,020,591 $ 42,007 4.1 %

North America Automotive segment EBITDA margin 7.4 % 7.3 %

International Automotive segment EBITDA margin 9.3 % 9.8 %

Industrial segment EBITDA margin 13.3 % 12.7 %

Corporate EBITDA margin (1.8) % (1.4) %

Total adjusted EBITDA margin 8.3 % 8.5 %

For the three months ended June 30, 2026, net sales increased 6.0% compared to 2025.

The increase was driven by a 3.4% increase in comparable sales, a 1.4% benefit from favorable impact of foreign currency and other, and a 1.2% benefit from acquisitions.

For the six months ended June 30, 2026, net sales increased 6.4% compared to 2025.

We experienced a 2.9% increase in comparable sales, a 2.3% benefit from favorable impact of foreign currency and other, and a 1.2% benefit from acquisitions.

Our comparable sales growth in both periods reflected pricing benefits and gains from our strategic initiatives.

We estimate that comparable sales for both periods benefited from approximately 2.5% of price inflation, including tariff related impacts.

North America Automotive

Net sales for the three months ended June 30, 2026, for North America Automotive were $2.5 billion, an increase of 3.8% from 2025.

The increase is primarily attributable to a 2.6% increase in comparable sales and a 1.3% increase from acquisitions.

Net sales for the six months ended June 30, 2026, for North America Automotive were $4.9 billion, an increase of $191 million from 2025.

The increase is primarily attributable to a 2.4% increase in comparable sales, a 1.4% increase from acquisitions and a 0.3% favorable impact from foreign currency and other.

Our sales growth within North America Automotive reflected favorable execution in company-owned operations and strong contributions from our stores that were acquired over the last twelve months, which enhanced our ability to reach and serve our customers.

International Automotive

Net sales for the three months ended June 30, 2026 for International Automotive were $1.6 billion, an increase of 8.2% from 2025.

The increase is attributable to a 4.9% favorable foreign exchange impact, a 2.7% increase from acquisitions and a 0.6% increase in comparable sales.

Net sales for the six months ended June 30, 2026 for International Automotive were $3.2 billion, an increase of 10.7% from 2025.

The increase is attributable to a 7.8% favorable foreign exchange impact, a 2.5% increase from acquisitions and a 0.4% increase in comparable sales.

Net sales for the three months ended June 30, 2026 for Industrial were $2.4 billion, an increase of 7.1% compared to 2025.

The increase in sales primarily reflects a 6.1% increase in comparable sales and a 0.8% favorable impact from foreign currency.

Net sales for the six months ended June 30, 2026 for Industrial were $4.7 billion, an increase of 6.2% compared to 2025.

The increase in sales primarily reflects a 5.0% increase in comparable sales and a 1.0% favorable impact from foreign currency.

During the second quarter of 2026, economic activity in the U.S.

manufacturing sector, measured by PMI, marked its strongest monthly expansions since May 2022, supporting sales demand in our Industrial segment.

Gross Profit and Gross Margin

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.

Gross profit increased $146 million, or 6.3%, with gross margin increasing approximately 10 basis points to 37.8% during the three months ended June 30, 2026, compared to the same prior year period.

Gross profit increased $312 million, or 6.9%, with gross margin increasing approximately 20 basis points to 37.6% during the six months ended June 30, 2026, compared to the same prior year period.

The increases in gross profit are primarily driven by increased sales, and our margin expansion reflects our ongoing pricing and sourcing initiatives, partially offset by the impact of tariffs and Middle East conflict-driven inflation in 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.

SG&A expenses increased $146 million, or 8.3%, during the three months ended June 30, 2026 compared to the same prior year period, and, as a percentage of sales, increased 60 basis points.

SG&A expenses increased $293 million, or 8.4%, during the six months ended June 30, 2026 compared to the same prior year period, and, as a percentage of sales, increased 60 basis points.

SG&A expenses increased in both periods primarily due to higher salaries and wages, freight, healthcare, rent, and IT costs, as well as additional operating expenses associated with recent acquisitions.

In addition, SG&A expenses increased due to foreign currency exchange impacts of approximately $30 million and $100 million for the three and six months ended June 30, 2026, respectively.

We also incurred costs of $16 million and $34 million related to the planned separation of our Global Automotive and Global Industrial businesses for the three and six months ended June 30, 2026, respectively.

Our global restructuring initiatives provided a 30 basis point benefit to SG&A for both the three and six months ended June 30, 2026.

As a percentage of net sales, SG&A increased approximately 60 basis points for both the three and six month period primarily due to inflationary pressures on freight, healthcare, rent, ongoing planned investments in technology, and separation costs.

In response to ongoing inflationary cost pressures, during the six months ended June 30, 2026, we implemented 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.

As a result of some of these actions, salaries and wages as a percentage of net sales during the three and six month periods were roughly flat.

Restructuring and Other 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.

As part of our global restructuring plan, which was approved and initiated in February 2024, we incurred $71 million and $129 million associated with facility closures and additional severance costs during the three and six months ended June 30, 2026, respectively.

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 $16 million related to planned investments in technology and supply chain initiatives.

Depreciation and amortization expenses increased $12 million and $27 million for the three and six months ended June 30, 2026, respectively, related to planned investments in technology and supply chain initiatives.

Non-Operating Expenses and Income

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.

We incurred $43 million in net non-operating expense during the second quarter of 2026, a $4 million change from $38 million in net non-operating expense in the prior year period.

We incurred $83 million in net non-operating expense during the six months ended June 30, 2026, a $9 million change from $75 million in net non-operating expense 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.

Our effective income tax rates were 22.6% and 24.7% for three months ended June 30, 2026 and 2025, respectively.

Our effective income tax rates were 22.8% and 23.9% for six months ended June 30, 2026 and 2025, respectively.

The rate decreases for both periods are primarily due to domestic investment tax credits, partially offset by reduced tax benefits related to our share-based compensation.

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.

Net income was $228 million for the three months ended June 30, 2026, a decrease of 10.7% compared to $255 million during the second quarter of 2025.

Diluted earnings per share ("EPS") was $1.65 for the second quarter of 2026 , down $0.18 compared to $1.83 during the prior year period.

Net income was $416 million for the six months ended June 30, 2026, a decrease of 7.4% compared to $449 million during the same prior year period.

Diluted earnings per share ("EPS") was $3.01 for the six months ended June 30, 2026, down 6.8% compared to $3.23 during the same prior year period.

The year over year declines in net income are primarily due to certain nonrecurring costs related to the planned separation of our Global Automotive and Global Industrial businesses, increased restructuring and other costs, and higher costs associated with the conflict in the Middle East.

These were partially offset by gross profit increases from sales growth and pricing and sourcing initiatives, and benefits from our global restructuring program and cost actions, which are discussed above in more detail.

Adjusted net income was $296 million for the three months ended June 30, 2026, an increase of 1.5% compared to the same prior year period.

On a per share basis, adjusted net income was $2.15, an increase of 2.4% compared to $2.10 in the same prior year period.

Adjusted net income was $541 million for the six months ended June 30, 2026, an increase of 1.1% compared to the same prior year period.

On a per share basis, adjusted net income was $3.92, an increase of 2.1% compared to $3.84 in the same prior year period.

Adjusted net income increased primarily due to gross profit increases from sales growth and pricing and sourcing initiatives, and benefits from our global restructuring program and cost actions, which are discussed above in more detail.

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.

North America Automotive EBITDA increased $12 million, or 6.0% for the three months ended June 30, 2026, driven by the following factors.

North America Automotive segment sales grew $93 million, or 3.8%, primarily driven by a 2.6% increase in comparable sales and a 1.3% benefit from acquisitions.

Gross profit increased $32 million, or 3.3%, primarily driven by higher sales and benefits from our pricing and sourcing initiatives.

Operating expenses increased $20 million due to continued inflationary pressures.

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

North America Automotive EBITDA increased $21 million, or 6.1% for the six months ended June 30, 2026 driven by the following factors.

North America Automotive segment sales grew $191 million, or 4.1%, driven by a 2.4% increase in comparable sales, a 1.4% benefit from acquisitions, and a 0.3% favorable impact from foreign currency and other.

Gross profit increased $72 million or 3.9%, primarily due to higher sales and benefits from our pricing and sourcing initiatives.

Operating expenses increased $51 million due to continued inflationary pressures.

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

For the three months ended June 30, 2026, EBITDA margin improved 20 basis points to 8.2% from 8.0% compared to the prior year period.

For the six months ended June 30, 2026, EBITDA margin improved 10 basis points to 7.4% from 7.3% compared to the prior year period.

Our margin expansion in both periods was driven by the benefits of disciplined headcount management and our on-going cost control initiatives which improved operating expense leverage on higher sales volumes, despite continued inflationary pressures and incremental expenses associated with acquired businesses.

These improvements more than offset the slight contraction in gross margin in both periods, primarily due to the impact of businesses acquired after the second quarter of 2025 that operate at slightly lower gross margins.

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.

International Automotive EBITDA increased $8 million, or 6.0% for the three months ended June 30, 2026 driven by the following factors.

International Automotive segment sales grew $120 million, or 8.2%, driven by a 4.9% benefit from favorable foreign currency exchange, a 2.7% contribution from acquisitions, and a 0.6% increase in comparable sales.

Gross profit increased $55 million, or 8.1%, 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.

Operating expenses increased $47 million due to continued inflationary pressures impacting personnel costs, rent and freight.

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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International Automotive EBITDA increased $15 million, or 5.3% for the six months ended June 30, 2026 driven by the following factors.

International Automotive segment sales grew $306 million, or 10.7%, driven by a 7.8% benefit from favorable foreign currency exchange, a 2.5% contribution from acquisitions, and a 0.4% increase in

comparable sales.

Gross profit increased $135 million, or 10.2%, in-line with the increase in sales.

Operating expenses increased $120 million driven primarily by inflationary pressures impacting personnel costs, rent and freight.

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

For the three months ended June 30, 2026, EBITDA margin decreased 20 basis points to 9.4% from 9.6% compared to the prior year period.

For the six months ended June 30, 2026, EBITDA margin decreased 50 basis points to 9.3% from 9.8% compared to the prior year period.

The decline primarily reflects higher fuel and freight costs associated with the conflict in the Middle East, which resulted in reduced expense leverage during both periods.

Gross margin was flat for the three months period and declined 20 basis points for the six months period, primarily due to the impact of businesses acquired after the second quarter of 2025 that operate at a slightly lower gross margin for the six month period.

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

Industrial EBITDA increased $28 million, or 9.8%, for the three months ended June 30, 2026 driven by the following factors.

Industrial segment sales increased by $159 million or 7.1%, for the three months ended June 30, 2026, primarily driven by a 6.1% increase in comparable sales and a 0.8% favorable impact of foreign currency.

Gross profit increased $65 million, or 9.4%, primarily driven by higher sales and benefits from our pricing and sourcing initiatives.

Industrial EBITDA increased $64 million, or 11.2%, for the six months ended June 30, 2026 driven by the following factors.

Industrial segment sales increased by $275 million, or 6.2%, for the six months ended June 30, 2026, primarily driven by a 5.0% increase in comparable sales and a 1.0% favorable impact of foreign currency.

Gross profit increased $110 million, or 8.2%, primarily driven by higher sales and benefits from our pricing and sourcing initiatives.

For the three months ended June 30, 2026, EBITDA margin improved 30 basis points to 13.1% from 12.8% compared to the prior year period.

For the six months ended June 30, 2026, EBITDA margin improved 60 basis points to 13.3% from 12.7% compared to the prior year period.

Our margin expansion in both periods was driven by the benefits our strategic pricing and sourcing initiatives which drove gross margin expansion of 70 and 50 basis points for the three and six month periods, respectively, and the continued benefits of our global restructuring and disciplined cost control initiatives.

Corporate EBITDA and Other Segment Reconciling items

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

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.

Corporate EBITDA amounted to losses of $108 million, or 1.6% of net sales, and $227 million, or 1.8% of net sales, for the three months ended June 30, 2026 and six months ended June 30, 2026, respectively, compared to losses of $79 million, or 1.3% of net sales, and $170 million, or 1.4% of net sales, in the prior year periods.

The increased losses were primarily driven by inflationary pressures impacting personnel costs and health insurance.

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

For the six months ended June 30, 2026, we incurred $134 million of restructuring and other costs and $34 million of separation costs.

EBITDA was $474 million for the second quarter of 2026, a decrease of 5.5% from $502 million during the same prior year period.

Adjusted EBITDA was $567 million in the second quarter of 2026 , an increase of 3.6% from $547 million during the same prior year period.

The increase in adjusted EBITDA was primarily driven by improved segment operating performance and continued execution of strategic pricing, sourcing, and cost control initiatives

EBITDA was $895 million for the six months ended June 30, 2026, a decrease of 1.3% from $906 million during the same prior year period.

Adjusted EBITDA was $1.1 billion for the six months ended June 30, 2026, an increase of 4.1% from $1.0 billion during the same prior year period.

The increase in adjusted EBITDA reflects higher segment EBITDA across North America Automotive, International Automotive and Industrial, supported by

comparable sales growth, acquisition contributions, strategic pricing actions and benefits from our global restructuring and cost initiatives.

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 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, 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.

For example, for the three and six months ended June 30, 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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2026 2025 2026 2025

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Adjusted net income $ 296,234 $ 291,787 $ 540,785 $ 534,860

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The table below represents amounts per common share assuming dilution:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except per share data) 2026 2025 2026 2025

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(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 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.

For the three and six months ended June 30, 2026, we applied the statutory income tax rates to the taxable portion of all of our adjustments, which resulted in a tax impact of $24 million and $43 million, respectively.

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2026 2025 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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2026 2025 2026 2025

Cost of goods sold $ 5,289 $ — $ 5,289 $ —

Selling, administrative and other expenses 16,169 — 33,708 14,035

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Total adjustments $ 92,607 $ 45,712 $ 167,878 $ 114,517

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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

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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.

Currently, we believe that our existing lines of credit, term loan A facilities, 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.

For the six months ended June 30, 2026, net cash provided by operating activities was $464 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.

During the six months ended June 30, 2026, we 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.

For the six months ended June 30, 2026, we deployed $288 million for dividends, $205 million for capital expenditures, and $38 million for acquisitions.

In addition, we had net proceeds of debt of approximately $204 million, which includes $339 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,

Six Months Ended June 30,

(In thousands) 2026 2025 $ Change % Change

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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.

On April 28, 2026, we amended our existing Syndicated Facility Agreement to establish a Term Loan A Facility in an aggregate principal amount of $500 million and a Delayed Draw Term Loan Facility in an aggregate principal amount of $500 million, each maturing on October 28, 2027.

As of June 30, 2026, total liquidity was $2.3 billion, consisting of $559 million in cash, $500 million available under the Delayed Draw Loan Facility, and $1.2 billion of available capacity under the company's $2.0 billion

Revolving Credit Agreement.

This reflects $70 million drawn on the revolver and $683 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.

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

At June 30, 2026, we had $5.0 billion of total debt outstanding.

Approximately $1.2 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.

Additionally, we have an A/R Sales Agreement to sell short-term receivables from certain customer trade accounts to 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.

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

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.

At June 30, 2026, our total average cost of debt was 4.01%, 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.

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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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis