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Item 2. Management’s Discussion and Analysis

2026-10-20 compared with 2026-07-21 · 111 added, 111 removed, 241 unchanged (48% 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 six months ended June 30, 2026 are not necessarily indicative of results for the year ended December 31, 2026.

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

Forward-Looking Statements

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competitive product, service and pricing pressures;

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

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

the uncertainties and costs of litigation;

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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 six months ended June 30, 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 six months ended June 30, 2026.

Our Industrial business operated in the U.S.,

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

For the nine months ended September 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., 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 value to our shareholders.

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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.

While we have no operations in the Middle East, we did experience an increase in fuel and related supply chain costs attributable to the conflict, including higher freight costs, 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.

The ongoing effects of the conflict remain uncertain.

Tariffs and Other Trade Policy Matters

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.

During the nine months ended September 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.

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

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.

Subsequent to the ruling, we submitted refund claims related to these tariffs.

The claims submitted and refunds received through September 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 second quarter performance continued to reflect solid sales across our business segments and benefits from our global restructuring initiatives, despite a challenging operating environment.

Our third 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 4.2%, 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.

During the third quarter, we incurred restructuring and other costs and costs associated with our planned separation, which contributed to a 0.8% decline in net income.

Excluding these items, adjusted net income increased 3.8%, 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,

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

Three Months Ended September 30,

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

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Net income $ 224,447 3.4 % $ 226,171 3.6 % $ (1,724) (0.8) %

Three Months Ended June 30,

Three Months Ended September 30,

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

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Total adjusted EBITDA margin 8.4 % 8.4 %

Six Months Ended June 30,

Nine Months Ended September 30,

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

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Net income $ 640,540 3.3 % $ 675,443 3.7 % $ (34,903) (5.2) %

Six Months Ended June 30,

Nine Months Ended September 30,

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

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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.

For the three months ended September 30, 2026, net sales increased 4.2% compared to 2025.

The increase was driven by a 2.9% increase in comparable sales, a 0.9% benefit from acquisitions, and a 0.5% benefit from favorable impact of foreign currency and other.

For the nine months ended September 30, 2026, net sales increased 5.6% compared to 2025.

We experienced a 2.9% increase in comparable sales, a 1.7% benefit from favorable impact of foreign currency and other, and a 1.1% benefit from acquisitions.

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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.

Net sales for the three months ended September 30, 2026, for North America Automotive were $2.5 billion, an increase of 2.2% from 2025.

The increase is primarily attributable to a 1.7% increase in comparable sales and a 1.1% increase from acquisitions, offset by a 0.6% unfavorable impact of foreign currency and other.

Net sales for the nine months ended September 30, 2026, for North America Automotive were $7.4 billion, an increase of $247 million, or 3.4%, from 2025.

The increase is primarily attributable to a 2.2% 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.

Impacts from foreign currency and other were relatively flat.

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.

Net sales for the three months ended September 30, 2026 for International Automotive were $1.6 billion, an increase of 4.5% from 2025.

The increase is attributable to a 1.7% increase from acquisitions, 1.7% favorable foreign exchange impact, and a 1.1% increase in comparable sales.

Net sales for the nine months ended September 30, 2026 for International Automotive were $4.7 billion, an increase of 8.5% from 2025.

The increase is attributable to a 5.5% favorable foreign exchange impact, a 2.1% increase from acquisitions and a 0.9% 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.

Net sales for the three months ended September 30, 2026 for Industrial were $2.4 billion, an increase of 6.1% compared to 2025.

The increase in sales primarily reflects a 5.5% increase in comparable sales and a 0.5% favorable impact from foreign exchange.

Net sales for the nine months ended September 30, 2026 for Industrial were $7.1 billion, an increase of 6.1% compared to 2025.

The increase in sales primarily reflects a 5.1% increase in comparable sales and a 0.8% favorable impact from foreign exchange.

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

manufacturing sector, measured by PMI, continued its run of expansion, with eight of the first nine months of 2026 reflecting expansion;

supporting sales demand in our Industrial segment.

Gross Profit and Gross Margin

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.

Gross profit increased $143 million, or 6.1%, with gross margin increasing approximately 70 basis points to 38.1% during the three months ended September 30, 2026, compared to the same prior year period.

Gross profit increased $454 million, or 6.6%, with gross margin increasing approximately 30 basis points to 37.7% during the nine months ended September 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 $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 $139 million, or 7.7%, during the three months ended September 30, 2026 compared to the same prior year period, and, as a percentage of sales, increased 100 basis points.

SG&A expenses increased $432 million, or 8.2%, during the nine months ended September 30, 2026 compared to the same prior year period, and, as a percentage of sales, increased 70 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.

In addition, SG&A expenses increased due to foreign currency exchange impacts of approximately $10 million and $110 million for the three and nine months ended September 30, 2026, respectively.

We also incurred costs of $21 million and $55 million related to the planned separation of our Global Automotive and Global Industrial businesses for the three and nine months ended September 30, 2026, respectively.

As a percentage of net sales, SG&A increased approximately 100 basis points for the three month period and approximately 70 basis points for the nine-month period primarily due to inflationary pressures on freight, healthcare, rent, ongoing planned investments in technology, and separation costs.

Separation costs contributed 30 basis points of the SG&A increase as a percentage of net sales for the three and nine months ended September 30, 2026.

In response to ongoing inflationary cost pressures, during the nine months ended September 30, 2026, we continued our targeted cost-control initiatives, including reductions in discretionary travel and the strategic deferral of select technology and other projects.

Restructuring and Other Costs

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.

As part of our global restructuring plan, which was approved and initiated in February 2024, we incurred $65 million and $193 million associated with facility closures and additional severance costs during the three and nine months ended September 30, 2026, respectively.

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

Depreciation and Amortization

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.

Depreciation and amortization expenses increased $10 million and $37 million for the three and nine months ended September 30, 2026, respectively, related to planned investments in technology and supply chain initiatives.

Non-Operating Expenses and Income

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.

We incurred $50 million in net non-operating expense during the third quarter of 2026, a $7 million change from $43 million in net non-operating expense in the prior year period.

We incurred $133 million in net non-operating expense during the nine months ended September 30, 2026, a $16 million change from $117 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 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.

Our effective income tax rates were 19.5% and 22.5% for three months ended September 30, 2026 and 2025, respectively.

Our effective income tax rates were 21.7% and 23.4% for nine months ended September 30, 2026 and

2025, respectively.

The rate decreases in both periods were primarily driven by renewable energy investments tax credits, tax benefits associated with foreign tax credits, as well as the impact of the mix of foreign and domestic income.

Net Income, Adjusted Net Income and Segment EBITDA

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.

Net income was $224 million for the three months ended September 30, 2026, a decrease of 0.8% compared to $226 million during the third quarter of 2025.

Diluted earnings per share ("EPS") was $1.62 for the third quarter of 2026 , unchanged compared to $1.62 during the prior year period.

Net income was $641 million for the nine months ended September 30, 2026, a decrease of 5.2% compared to $675 million during the same prior year period.

Diluted earnings per share ("EPS") was $4.64 for the nine months ended September 30, 2026, down 4.3% compared to $4.85 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.

Adjusted net income was $286 million for the three months ended September 30, 2026, an increase of 3.8% compared to the same prior year period.

On a per share basis, adjusted net income was $2.07, an increase of 4.5% compared to $1.98 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.

Adjusted net income was $827 million for the nine months ended September 30, 2026, an increase of 2.0% compared to the same prior year period.

On a per share basis, adjusted net income was $5.99, an increase of 2.9% compared to $5.82 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.

Adjusted net income increased in both periods primarily due to gross profit increases from sales growth, our 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 $12 million, or 6.0% for the three months ended June 30, 2026, driven by the following factors.

North America Automotive EBITDA decreased $6 million, or 2.9% for the three months ended September 30, 2026, driven by the following factors.

North America Automotive segment sales grew $56 million, or 2.2%, primarily driven by a 1.7% increase in comparable sales and a 1.1% benefit from acquisitions.

Gross profit increased $20 million, or 2.1%, primarily driven by higher sales and benefits from our pricing and sourcing initiatives.

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

Operating expenses increased $26 million due to continued inflationary pressures in freight, healthcare, wages and rent expenses.

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.

North America Automotive EBITDA increased $15 million, or 2.8% for the nine months ended September 30, 2026 driven by the following factors.

North America Automotive segment sales grew $247 million, or 3.4%, driven by a 2.2% increase in comparable sales and a 1.3% benefit from acquisitions.

Gross profit increased $92 million or 3.3%, 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.

Operating expenses increased $77 million due to continued inflationary pressures in freight, healthcare, wages and rent expenses.

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

For the three months ended September 30, 2026, EBITDA margin decreased 40 basis points to 7.6% from 8.0% compared to the prior year period.

Our margin compression was largely driven by continued inflationary pressures and incremental expenses associated with acquired businesses, coupled with slight contraction in gross margin, primarily due to the impact of businesses acquired after the third quarter of 2025 that operate at slightly lower gross margins.

For the nine months ended September 30, 2026, EBITDA margin was flat at 7.5% compared to the prior year period.

International Automotive

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.

International Automotive EBITDA increased $6 million, or 4.7% for the three months ended September 30, 2026 driven by the following factors.

International Automotive segment sales grew $67 million, or 4.5%, driven by a 1.7% benefit from favorable foreign currency exchange and a 1.7% contribution from acquisitions, and a 1.1% increase in comparable sales.

Gross profit increased $52 million, or 7.6%, primarily impacted by higher sales and the positive impact on our pricing and sourcing initiatives.

Operating expenses increased $46 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.

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.

International Automotive EBITDA increased $21 million, or 5.1% for the nine months ended September 30, 2026 driven by the following factors.

International Automotive segment sales grew $373 million, or 8.5%, driven by a 5.5% benefit from favorable foreign currency exchange, a 2.1% contribution from acquisitions, and a 0.9% increase in comparable sales.

Gross profit increased $187 million, or 9.3%, in-line with the increase in sales.

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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.

For the three months ended September 30, 2026, EBITDA margin was flat at 9.0% compared to the prior year period.

Our gross margin increased 130 basis points, primarily driven by higher sales and benefits from our pricing and sourcing initiatives.

These gains were offset by higher fuel and freight costs associated with the conflict in the Middle East, which resulted in reduced expense leverage during the period.

For the nine months ended September 30, 2026, EBITDA margin decreased 30 basis points to 9.2% from 9.5% 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.

Our higher sales and benefits from our pricing and sourcing initiatives drove an increase of 40 basis points in gross margin that partially offset the increase in operating expenses.

Industrial EBITDA increased $32 million, or 11.2%, for the three months ended September 30, 2026 driven by the following factors.

Industrial segment sales increased by $138 million or 6.1%, for the three months ended September 30, 2026, primarily driven by a 5.5% increase in comparable sales and a 0.5% positive impact from foreign currency.

Gross profit increased $71 million, or 10.4%, 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.

Industrial EBITDA increased $96 million, or 11.2%, for the nine months ended September 30, 2026 driven by the following factors.

Industrial segment sales increased by $413 million, or 6.1%, for the nine months ended September 30, 2026, primarily driven by a 5.1% increase in comparable sales and a 0.8% positive impact from foreign currency.

Gross profit increased $182 million, or 8.9%, 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.

For the three months ended September 30, 2026, EBITDA margin improved 60 basis points to 13.2% from 12.6% compared to the prior year period.

For the nine months ended September 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 120 and 80 basis points for the three and nine 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 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.

Corporate EBITDA amounted to losses of $104 million, or 1.6% of net sales, and $331 million, or 1.7% of net sales, for the three months ended September 30, 2026 and nine months ended September 30, 2026, respectively, compared to losses of $93 million, or 1.5% of net sales, and $263 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.

For the nine months ended September 30, 2026, we incurred $193 million of restructuring and other costs and $55 million of separation costs.

EBITDA was $462 million for the third quarter of 2026, an increase of 0.6% from $460 million during the same prior year period.

Adjusted EBITDA was $549 million in the third quarter of 2026 , an increase of 4.2% from $526 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.

EBITDA was $1.4 billion for the nine months ended September 30, 2026, a decrease of 0.6% from $1.4 billion during the same prior year period.

Adjusted EBITDA was $1.6 billion for the nine months ended September 30, 2026, an increase of 4.2% from $1.5 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 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.

For example, for the three and nine months ended September 30, 2026, certain of the non-GAAP metrics contained herein exclude costs relating to our global restructuring initiative, our planned separation and our acquisition and integration 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 June 30, Six Months Ended June 30,

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

(in thousands) 2026 2025 2026 2025

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The table below represents amounts per common share assuming dilution:

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

Three Months Ended September 30, Nine Months Ended September 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 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.

For the three and nine months ended September 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 $25 million and $68 million, respectively.

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

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

Three Months Ended September 30, Nine Months Ended September 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 June 30, Six Months Ended June 30,

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

(in thousands) 2026 2025 2026 2025

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Cash Flow Activity

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.

For the nine months ended September 30, 2026, net cash provided by operating activities was $817 million.

The increase in net cash provided by operating activities as compared to the prior year period is 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 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.

During the nine months ended September 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 nine months ended September 30, 2026, we deployed $434 million for dividends, $314 million for capital expenditures, and $69 million for acquisitions.

In addition, we had net proceeds of debt of approximately $338 million, which includes $45 million under our commercial paper program to support these investments.

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

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands) 2026 2025 $ Change % Change

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

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.

amount of $500 million, each maturing on October 28, 2027.

As of September 30, 2026 both facilities were fully drawn.

As of September 30, 2026, total liquidity was $2.4 billion, consisting of $0.8 billion in cash, and $1.6 billion of available capacity under our $2.0 billion Unsecured Revolving Credit Facility, which reflects $389 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 June 30, 2026, we had $5.0 billion of total debt outstanding.

At September 30, 2026, we had $5.1 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.

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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.

Refer to the Accounts Receivable Sales Agreement Footnote and the Supply Chain Finance Programs section within our General 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 June 30, 2026, our total average cost of debt was 4.01%, and we remain in compliance with all covenants connected with our borrowings.

At September 30, 2026, our total average cost of debt was 4.09%, 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.

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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