Good morning. I'm Sam Darkatsh. On behalf of Raymond James, we'd like to welcome you to the Genuine Parts presentation for today. With us from Genuine Parts is Bert Nappier, Executive Vice President and Chief Financial Officer, as well as Tim Walsh, Senior Director of Investor Relations. Bert, I think you mentioned that your prepared remarks might be, I don't know, 10 minutes or so, which should give us a fair amount of time to do a little bit of Q&A in this room, but then also immediately following, there will be a breakout session downstairs for more granular Q&A.
Yeah.
With that, Bert, welcome.
Thank you. Thanks, Sam, and good morning to everybody. Thanks for being here and taking some time to listen to the GPC story. I know many of you may be new to the story, so I thought we'd start with a little bit of opening remarks. Just give you a little bit of some color on GPC, what the business is, how it looks. I don't have any prepared slides, but I'll have some prepared remarks about the business. But again, thank you for being here. It's a privilege for us to join Sam and the team at Raymond James for this tremendously successful conference and well attended. So I've heard the attendance is quite robust this year, so thanks for coming to listen to us.
GPC, just for those of you who may not be familiar, a $23 billion organization. We're engaged in the distribution of automotive and industrial parts, and were founded in 1928, so we're coming up on a 100-year anniversary, as a company. Global business, we have about 10,000 locations across the globe, in four regions: the U.S., Canada, Europe, and a business in APAC, across what we call Australasia, which is predominantly Australia and New Zealand, and some of our industrial business in Indonesia. Our revenue is about 60/40, split between the two segments, so about 60% automotive, 40% industrial. And we operate in 17 countries, with 75% of our revenue in North America, 15% of our revenue in Europe, and about 10% of our revenue in APAC.
We have strong fundamentals for both businesses. Both segments benefit from being in a non-discretionary, mission-critical type environment. So when you think about industrial, mission-critical, break-fix, the machine in the plant is not running, and we need to get back up and get things running for our customer. Same on automotive, largely non-discretionary, break-fix, get the car back on the road and get our customer back in their daily routine, whether it's school or work or whatever the case may be. Our business is built on a strong culture, 100 years of a great culture. We focus on our customers, our team members, and profitable growth. I'll do a little bit of a double click on automotive for you. The GPC business was founded on the automotive side, with its origins in our U.S. NAPA business.
So you might be most, most familiar with the NAPA brand and the NAPA business, founded in 1925. So we are coming up on a hundred-year celebration for NAPA next year. It's interesting, we have two businesses inside automotive that have hundred-year anniversaries. We just celebrated a hundred-year anniversary for our Repco business in Australia, and next year we'll celebrate a hundred years of NAPA Know How. So, we're proud of our businesses, and what they do around the globe to keep our customers satisfied. Revenue on the automotive side is about $14 billion of our total. We have an extensive network, about 9,500 locations across those four regions: Canada, the U.S., Europe, and APAC. Nine countries in Europe.
We expanded over the last two years into Spain and Portugal, so expanding our presence in Europe into the fifth largest car park in the region. Our addressable market on the automotive side is about $200 billion, with the U.S. at about 7% share, or about $130 billion of that total. Our European business has about 6% share, and we're market leaders in Canada and APAC, with 20%—about 20% market share in Canada and about 20% market share in Australasia, APAC. The industry grows about 2%-3%, over time. So if you looked at long cycles of this automotive aftermarket, you'd see about 2%, 2%-3% growth. We see that a little lighter this coming year just because of economic hangover. And the preponderance of our business is commercial.
So when I say commercial, I mean our customer is a mechanic. So this is someone who's working in a garage, who's repairing a car for their customer. And so about 80% of our business, when you take it in aggregate, is on that commercial side. And we really see this as the growth and engine of the industry as we look ahead. The do it for me space or the commercial space, because of complexity of car, we think is the growth driver of the industry. And we primarily go to market in the U.S. as NAPA, as you know, but we also have the NAPA brand in every one of our regions. The industrial business, we love our industrial business, when we turn to that part of our business.
So about 40% of our revenue, it's about 50/50 split of profit. So the automotive business and the industrial business got to our stated goal of about a 50/50 split of profit. Our primary business in industrial is Motion Industries, here in North America. It's been a part of GPC since 1976, but been in business for over 75 years. So we're also proud of that business, and we have an industrial business in APAC as well. Also, Motion Industries in APAC, with a total revenue of just north of $8 billion. Our addressable market for the industrial side is about $150 billion, and we've got about 6% share for Motion here in North America, about 15% share in Australasia, APAC.
The 6% for Motion in the U.S., Motion is the market leader, at about $8 billion in revenue. Our next closest competitor would be about a $4 billion business. So we enjoy a nice market-leading position, good size and scale... and a very balanced book of business for the Motion business as we go to market, 14 different verticals. So we're not over-indexed in any one particular lane. We're not outweighted towards oil and gas or automotive. We have a nice book of business across 14 verticals, and you can think of those like oil and gas, automotive, food and beverage, pulp and paper. And over time, Motion has really transformed itself from just a bearings business to a business that really serves multiple markets, and multiple product lines.
We have about 800 locations for Motion in North America, about 12 million SKUs in that business, so a very diverse, wide-ranging ability to meet our customers' needs. And, probably the one thing I'd highlight about that business over the last two years is the transformational acquisition in the space of buying the Kaman Distribution Group, so KDG. Motion acquired Kaman in January 2022. We've just completed a two-year integration, so we'd set out to do that in three years, have done it in two. Set out to do $50 million in synergies and got $70 million. So we came in not only early but ahead of schedule, and this was the number one player in the market, combining with the number three.
So very transformational for Motion, continued to give more size and scale and brought in some capabilities that the business didn't previously have, in depth when we look at places that are growing fast, like automation and conveyance and some of these spaces. So we're excited about our Motion business, had a great year last year, and looking forward to another good one coming ahead. From a financial perspective, GPC is very well known for consistent delivery, and strong financial performance. If you look at our 20-year history, we've got a 5% revenue CAGR and 8% EPS CAGR over that 20-year period. So consistent, good, strong financial performance. 68 consecutive years of dividend increases, highlighted by our 5.3% increase to our dividend two weeks ago.
So continue to be very focused on shareholder returns and capital allocation that's disciplined across multiple prisms, whether it's the dividend, CapEx, M&A, or share repurchases. We have a strong balance sheet with a lot of firepower and ability to grow and really strong cash flows as well. Our 2023 financial highlights would include four and a half percent revenue growth, 12% EPS growth. That was our third consecutive year of double-digit earnings growth. We had a 50 basis point expansion of our profit margin and delivered $1.4 billion of operating cash flow and just over $900 million of free cash flow. As we look ahead to this year, our earnings was released mid-February, so these are our 2024 guidance numbers.
We're looking for 3%-5% revenue growth on the top line, 4%-6% earnings growth for EPS on an adjusted basis, margin growth in both of our segments, and we're looking for cash flow from operations in the $1.3 billion-$1.5 billion range. So, in closing, before I hand it back to Sam, strong distribution networks, market-leading positions, in very fragmented spaces. So with size and scale, we have the ability to continue to grow, and we have a backdrop that is a fundamental for our space of non-discretionary, mission-critical break-fix, with a strong balance sheet and the continued ability to deliver great financial results. So Sam, I'll turn it back to you.
Thanks, Bert. And by the way, in case folks are wondering why Bert's eyes are bloodshot, they just kind of came back from a long Asian trip. So I'm glad you're playing hurt for us here.
Yeah, no problem.
Um-
No problem.
So, speaking of Asia, we'll stay there for a minute.
Yeah.
I'm guessing you had some ops reviews. What's the Asian markets prospects and trends look like? You have some Asian exposure in both your primary businesses.
Yeah, look, we have a great business there. Been a part of the GPC family for just over a decade. Automotive business has grown, its top line 3x and EBITDA 4x in that time period. So we love the business there. The automotive space, like I said earlier, continues to be a market leader with about 20% share. We have the Repco brand, which is the, the hallmark of the, of the space, founded over 100 years ago now, and just laser focused on the customer. They know exactly what they're trying to do. They're not trying to sell air fryers and, and, you know, flip-flops. They're out there trying to sell car parts. So they're very, very focused on their customer, and they have a lot of success because of that.
We have the NAPA brand there as well, which is doing quite well, focused on that commercial space. The business is about 70/30 commercial retail. It continues to enjoy a great position there. Things have slowed, I think, here in the second half of last year, as you would have expected, along with many other parts of the globe, just because of economic conditions and a little tighter consumer. We've, you know, factored that into how we're thinking about this year. The industrial business has performed quite well, and our prospects there are really strong. That is a highly fragmented space. We have about 15% share, and so our ability to continue to grow and take share because of our size and scale, we think is, is a quite attractive opportunity.
So I guess the net sum of that for APAC, good opportunities in both. We see growth in both in 2024. We're gonna continue to take advantage of our market-leading positions, and where we can, particularly on the industrial side, probably continue to take a little bit more inorganic as we see opportunities coming along the way.
So this is largely a generalist conference, so I'll ask you some high-level questions for the folks that may not be as familiar. So compare and contrast your auto business with some other public peers that folks maybe is also familiar with, whether it's AutoZone or O'Reilly or Advance, or LKQ-
Yeah, sure.
in Europe and Canada. And then same question as it relates to, to industrial Motion versus, versus AIT, which is also public.
Yeah, sure. So, I'd start on the automotive side, probably with the fact that when you look at maybe some of our other peers here in the U.S., we're truly global. So our geographic footprint is a differentiator. As I said, we've got a business in Europe, Canada, Australasia, and the U.S. That's a little different than the others will look, so that's one factor that I would say set us apart from maybe that comparative point. The other thing I would highlight is our mix. When you look at GPC for automotive, we're predominantly a commercial business. The others will have a little heavier weighting towards the retail side of the house. Retail's about 20% of our business. As I said a minute ago, about 30% in Australasia.
When I look at the U.S., it's about 80-20, and so we look a little different in that regard. Our customer for the predominance of our business is the mechanic. You know, we're, we're working with mechanics in garages who have got cars up on lifts and who are doing that inspection and looking for the thing that's wrong. They need a part, maybe it's an alternator. They're making that phone call, and NAPA is there to get that to them as quickly as possible and get that car off the lift 'cause that's their business model. They need to get those cars out with high quality, great parts, so that when Sam wants to have another repair, he'll come back to that garage because he knows he's gonna get a good part and a good service.
So that's a little bit different, when we look at our competitors. And then finally, we have an independent owner model, in some of our markets, and, you know, straight-up competitors here in the U.S., that's a different, a little bit different thing as well. So about 6,000 locations, in the U.S. in terms of stores, about 17,000 affiliated NAPA Auto Care Centers, so about 23,000, NAPA-branded locations in the U.S. So nice size and scale, 6,000 stores, about 4,500 of them are independent owners. And so that model is a little bit different when you compare us to the, to the rest of the competitive set. We like the model. It's worked really well for almost 100 years.
You know, that benefits us in some rural markets where it's capital light, and we can have a presence in maybe a market that doesn't make quite as much sense to put our capital in the ground. We have great independent owners, great partners. Many of them are multi-generation NAPA business folks that wanna partner with us, entrepreneurs, and wanna grow, and when they grow, we grow. So we love that relationship. We are gonna pivot as we look ahead to leaning into a little bit more company-owned stores. We think that makes a lot more sense in some certain markets and being more competitive and controlling the whole transaction. So we're excited about that new opportunity as well.
And then when I turn back to industrial, and I think about Motion and how it stacks up against, the competition, the Motion business, really, I think, has a, a lot of key assets. One, it's distribution, so size and scale matters in distribution. And when you think about Motion being an $8 billion business in North America, next closest competitor's just north of $4 billion, we love that size and scale.
We love the balance of the business, and so Motion over time has evolved over the last decade from being something that maybe folks would have known 10 years ago as a bearings-only business to this nice book of business across 14 verticals, that really serves customers where they are for what they need in different markets, and has grown away from that bearings-only focus to multi-product line, and really focused in some very high-growth aspects of the business, like conveyance and like automation and robotics. Motion also has a value orientation towards our customers. So, for me to call our sales folks sales reps is a little disingenuous.
Many of these folks are engineers, and they bring a value orientation to our customer, where it's a solutions type engagement rather than just transactional, "I'm gonna bring you a part, drop it off at the receiving dock, and hope you get yourself sorted out and back online." Our folks really come into the back of a plant or a manufacturing facility, bring you the part. Their engineering background positions them to know as much or maybe more about the machine than the person running it, and we get them back online because these are mission-critical break-fix situations. If the manufacturing facility machine is down and not running, that's creating issues for our customers' customers. And so that value orientation is, I think, something that's part of the Motion recipe that helps them set themselves apart.
Then finally, I think what has transformed Motion to an even further degree in the last couple of years is the acquisition of KDG. Really transformative, highly, highly, complementary book of business. So Motion focused predominantly on national accounts, KDG focused on small and medium accounts. We bring together a nice, diverse book of business. Got some additional capabilities, which is what you always want with an M&A deal, and then a great execution of an integration a year ahead of time with more synergies than we expected, and our customers really have loved what we're doing in that space.
Thank you. So a couple, two, three questions of pushbacks that we hear from investors, if I could. You've had some issues within U.S. Auto of late with respect to fill rate, inventory management, some customer destocking. What led to those issues? How are you addressing them, and what's a reasonable timeframe for getting them fixed?
Yeah, no, that's a fair question for sure. And look, I mean, I'll own it. We didn't have the best year at U.S. Automotive in 2023. Tough go. But I think we had a period in which we've taken a lot of action, which I'll take you back through, and we really like our positioning as we start 2024. We start 2024 much more front-footed than we spent most of 2023. If you guys will indulge me just for a second, you know, going back in time to this time last year, 2023 started a little soft for U.S. Automotive. We had attributed a lot of that to weather, unseasonably warm winter weather here in the U.S. For those of you that follow the space, the automotive aftermarket thrives in extreme temperatures.
So extreme cold generates part failure, extreme heat generates part failure. And so we were counting on a much tougher winter here in the U.S. and didn't get it, and unfortunately, that led to a soft start to the year. We expected that, fully expected that to rebound. When it didn't, we took a little deeper look into what was happening, made some leadership changes at the U.S. NAPA business, with a new president and a new CFO. Those two gentlemen came from our Motion business, where they'd had a tremendous amount of success. They know distribution, they're seasoned executives, and with their great track record, we knew that playbook would carry over to NAPA over the longer cycle.
You know, with any new leader, you got to give them a little time to get their feet under them and give them a little grace to get oriented, and we've done that. As we got into the third quarter, I think the thing that we saw that was most challenging is one of the things that is critical to success in the aftermarket, which is inventory availability. And you can imagine a NAPA business that's 100 years old, and in a 100-year-old business, you're going to have a lot of longtime partners. And in our case, we had some suppliers that have been with us for many decades. And through all of the things that have happened to not only our business, but every business through COVID, they had their own challenges.
You want to give somebody who's been your partner for a long time, the benefit of the doubt, and I think we did that with a lot of grace until the point at which we couldn't. We made a tough call last third quarter to change out a couple of key suppliers and key product categories. Tough decision, the right decision for the business, but in a distribution and supply chain network, those take a little time to work through, and it really took us the balance of the year to get that, finished out. We start the year 2024 in a much stronger place on fill rates with these few categories that are, you know, key to our business.
We feel like we're much more competitive and got our place back to where we need to be to have a successful 2024 in that regard. The second thing, and again, there's no single point of failure here when you think about 2023 for NAPA. The other thing I would point out would be store execution. We got away from some of our rigor and discipline in our stores. Not only is inventory availability key to the aftermarket, and being successful in getting that sale, it's about getting it out of the store and to the mechanic for that whole reason I talked about a moment ago, about that getting that car off the rack and getting it out back on the street. And we've made adjustments there.
We put a new position in the fourth quarter to have an EVP of sales and store operations, and so Tom Skov wakes up every day now thinking about selling auto parts and making sure that our store operations are operating at a very high level. And so we think that's beneficial as well. There were some things that were outside of our control. I mean, many of you know that inflation in the aftermarket, automotive aftermarket, has had a two-year pretty whipsawed series of impacts, 2022 with a great amount of benefit, 2023 with a lot of headwind. We felt that as well. But I guess the net sum of that is we're encouraged by where we find ourselves as we start 2024, regain that position of strength, focused on execution every single day.
As we look at 2024, and we think about a global automotive segment top-line guide of 2%-4%, while we don't guide to specific business units, many of you know that the U.S. automotive business is the substantial majority of our automotive segment. So for a 2%-4% top line for 2024, you know that it's our expectation for NAPA to have a good year.
So, how—if you could characterize how the year has started through January, February, quarter to date. I know I don't mean to fixate on the quarter, but we have had a couple of quarters in a row where-
Yeah
... things were a little bit below expectations. So have you, have you started to see a turn as of yet?
Yeah. No, I don't want to talk about months too specifically, but I will talk about the quarter. Maybe I'll set that up in the context of the year. So as I mentioned in my opening remarks, we're calling for EPS growth on an adjusted basis this year, 4%-6%. So just call it 5% at the midpoint. So another good year for GPC. Within that, I do think the first quarter is our most challenging quarter of the year by far. We've got some tough comparables. Motion last year in the first quarter grew at 12%. Industrial production was still pretty positive and robust in the first half of last year, so we're comping against a tough industrial motion comp.
In the automotive space, back to this inflation point, I mean, inflation benefit and price for automotive aftermarket was still in the high single digits this time last year, and so we're comping up against our expectation that that stays at, at 1 or less for this year. So when I think about Q1, probably our most challenging quarter, for 2024. Within that, January started off as we expected, sequentially improved on a material basis for U.S. automotive from December, and that was in line with, with where we expected them to be. So we're encouraged. We're encouraged that the things that we've done and the way we're looking at the business internally has started us off on the right foot in 2024. Do we have any questions in the room here before I continue? Yeah, please.
You mentioned the 80% commercial would be a global business versus a DIY and DIFM or maybe some changes?
Yeah, so I'll repeat the question for those on the back of the room, but also on the webcast. The question was, what's the breakdown of our 80% of our business, across, you know, the different ways we would think about segmentation? So about 40% of that business is small and medium accounts. So the up and down the street, small, regional. Twenty, a little less than 20% is national accounts. And so, you know, that's the brand names you might throw out. Another 20%, we'd find ourselves in governmental work, governmental business, and another 20% on fleet. And so fleet would be somebody who operates a big fleet of vehicles like, the big resorts that are around us, and auto care would be another part of that as well.
What is the difference in margin profile on these segments?
Yeah, we don't really get into specifics of the margin profile by precise numbers. Small and medium businesses probably gonna be on the more profitable end of the spectrum. National accounts probably gonna be on the more competitive end of the spectrum, just because they're doing the same thing we would do in terms of using their size and scale to negotiate the best deal. We're gonna do the same thing. So, when you look at the margin profile of global automotive, you know, with somewhere in mid-single digit total segment margin for our global automotive business, it'll be on either spectrum of that when you look at the two kind of buckets, and then everything else would fall more in the middle.
Single digit operating?
It's, we finished last year at right around eight, so... Yep.
In the back, yes?
Yeah, you mentioned, you know, increasing complexity of cars being a game segment, and, we hear, you know, companies like Copart and IAA talk about, increasing, total loss rates in that business due to increasing complexity of cars. How do you see it influencing your business? I know cars, can't be repaired, say, using complex that might be connected to resources. Cars can't be repaired by, by dealer through, throughout the impact over the next. So that's, how do you look, at those factors be there?
Yeah. So I think the question, I'll repeat it for everybody, the gist of the question and clean me up if I didn't get it right, but it's with the complexity of car and the increasing cost of car repairs, some are moving to total loss. Is that a headwind or a tailwind for the business in general? Is that, did I get that right? Yeah. Okay. Look, we haven't seen much of that at this point. I think the core fundamental point for us is commercial is the growth engine of the industry. It's the growth engine of the industry because of complexity of car. And that really has been the fueling factor. We haven't seen a lot of evidence that total loss, because it's too complex to fix, has really impacted the business at this point.
We're really seeing more of the trend just to, it's gotten so complex with all of the intricacies of it, that I can't fix it myself anymore, and that's why they're leaning into the commercial side.
Taking the time off that.
Yeah, electric vehicles. I don't know how much time we have. We could probably spend the rest of the time talking about EVs if you wanted.
If we got two minutes.
two minutes. I don't know if I can do it justice in two minutes.
Yeah.
Look, EV, I'll try to make this as quick as I can. Early innings, excuse the baseball reference for the international team, but early stages, I guess, is the best way to think about it. When you think about EVs, many EVs are just coming out of warranty periods for the earliest adopters, right? So they're just getting out of the warranty period. They're getting into the automotive aftermarket. We think we lead in this space. We're doing some things that we think, from a CFO perspective, are capital light, but smart because we don't wanna wake up and wonder how this happened to us. So we're trying to stay front-footed but not over-indexed. We're stocking EV parts.
That's gonna continue to evolve as we learn more about the predictive analytics and the data that tells us what SKUs to have and where to have them, along the spectrum of the assortment. So that's gonna continue to evolve as we get more data on how EVs wear and tear, and what maintenance is required. I mean, some early indicators are tires are wearing out faster due to the weight of the vehicle. I mean, we see that just probably more anecdotally than anything. The other thing we think is that consumers are gonna want choice. You have a lot of choice right now with your combustion engine vehicle about where to have it repaired. You can come to a NAPA Auto Care Center, you can go to a national account, you can go to your local mechanic.
With an EV, you don't have a ton of choice, and some of the experiences aren't positive, and we think the future is having choice just like you do today. And so one of the things that's a benefit to having a global business and having a presence in Europe is our ability to test concepts in Europe, where the market's more penetrated for EV, and that's where we're rolling out in about 400 locations, what we call the Workshop of the Future, where we take an existing facility, capital light model, and certify it to work on the EV. And we're gonna roll that to Canada as well.
And look, the U.S. has its own challenges with adoption and infrastructure and all the other things that go along with it, and the great thing is we have the ability to learn around the globe and bring it here when it makes sense and when the economics make sense for GPC.
Let alone the fact that, hybrids are even more complex.
Yeah, the hybrids are-
I see.
Everybody go buy a hybrid.
Yeah.
It's the best of both.
Anyway, we'll... we're out of time here.
Yeah.
We'll continue this in the breakout session. Thank you, sir.
Thanks.
Appreciate it.