Good day, ladies and gentlemen, and welcome to the Genuine Parts Company third quarter 2026 earnings conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, October 20, 2026. At this time, I would like to turn the conference call over to Tim Walsh, Vice President of Investor Relations. Please go ahead, sir.
Thank you, and good morning, everyone. Welcome to Genuine Parts Company's third quarter 2026 earnings call. Joining us on the call today are Will Stengel, Chairman and Chief Executive Officer, Court Carruthers, Chief Executive Officer-elect, and Bert Nappier, Executive Vice President and Chief Financial and Operating Officer. In addition to this morning's press release, a supplemental slide presentation can be found on the investors page of the Genuine Parts Company website. Today's call is being webcast, and a replay will also be made available on the company's website after the call. Following our prepared remarks, the call will be open for questions, the responses to which will reflect management's views as of today, October 20, 2026. If we are unable to get to your questions, please contact our Investor Relations department.
Please be advised this call may include certain non-GAAP financial measures, which may be referred to during today's discussion of our results as reported under generally accepted accounting principles. A reconciliation of these measures is provided in the earnings press release. Today's call may also involve forward-looking statements regarding the company and its businesses as defined in the Private Securities Litigation Reform Act of 1995. The company's actual results could differ materially from any forward-looking statements due to several important factors described in the company's latest SEC filings, including this morning's press release. The company assumes no obligation to update any forward-looking statements made during this call. With that, I will turn it over to Will.
Thank you, Tim. Good morning, everyone, and thank you for joining our third quarter 2026 earnings call. I want to begin by recognizing our team members around the world for their exceptional teamwork and disciplined execution against a challenging macroeconomic backdrop. Our teams are managing the business well as we simultaneously advance the important work to create two standalone public companies. Our commitment to serving customers remains a daily priority and a key driver of our performance. This morning, I will review our third quarter results by segment and share an update on the planned separation, which remains on track for completion in the first quarter of 2027. Following my remarks, you will hear from Court on his early observations from his first six weeks, and Bert will close with an update on our financial performance during the quarter and provide color on our outlook.
We delivered a solid third quarter in line with our expectations, supported by focused execution across our businesses. While the global operating environment remains dynamic with geopolitical uncertainty in the Middle East, persistent cost inflation, and a cautious consumer, our teams continue to be agile and operate the business with discipline. Turning to our financial results, a few highlights for the third quarter include total GPC sales of $6.5 billion, an increase of over $250 million, or up approximately 4% compared to the third quarter of 2025. Gross margin expansion of 70 basis points, in line with our expectations, driven by strategic pricing and sourcing initiatives. Segment EBITDA in industrial increased approximately 11% versus prior year to 13.2% of sales.
An adjusted earnings per share of $2.07, an increase of approximately 5% versus the same period last year. Now turning to our results by business segment. Total sales for industrial were $2.4 billion, an increase of approximately $140 million, or up 6% versus the same period in the prior year, with comparable sales up 5.5%. During the quarter, the benefit from price inflation was approximately 2%. From a cadence perspective, all three months of the quarter were similar on an average daily sales basis, growing mid to high single digits versus last year, with September being the strongest month of the quarter. Motion delivered another strong quarter with continued growth across large corporate accounts, small to medium-sized local customers, and its value-added solutions offerings.
We are encouraged by the industrial market backdrop and the current level of customer activity, including nine consecutive PMI readings over 50 and solid performance year- to- date. Following a prolonged period of industrial market contraction, deferred maintenance and delayed investments are beginning to be addressed by customers. We believe data center and AI infrastructure investment is also having a positive impact on the broader manufacturing economy. Looking at the performance across our diversified end markets, we saw growth in 12 of our 14 end markets we track, which is up from 11 in the second quarter and seven in the same period of the prior year. During the quarter, we saw notable growth in equipment and machinery, which was up high single- digits.
We also saw mid- single digit to double-digit growth in food products, iron and steel, automotive, fabricated metals, D.C. and logistics, oil and gas extraction, and equipment rental and leasing. This growth was slightly offset by softer demand in lumber and wood, and rubber and plastics. Motion has the diversified scale, unique value proposition, and One Motion Invoice customer approach to differentiate itself from the competition in a highly fragmented market. By solving customers' problems with technical industry and technology expertise and becoming deeply familiar with and embedded in customers' operations, Motion delivers differentiated solutions that create customer loyalty and recurring profitable growth. An action bias and service culture across the Motion team is a key to this success.
Our core break fix MRO business, which accounts for approximately 80% of Motion sales, was up approximately 5% during the quarter. The remaining 20% of Motion sales, which originates from more capital-intensive projects, was up nearly 10%. Larger customer orders and capital project activity were solid in the quarter. Industrial segment EBITDA in the third quarter was $317 million, up approximately 11% and 13.2% of sales, which represents a 60 basis point increase from the same period last year. The strong results were driven by our multiyear sales effectiveness, pricing, and sourcing initiatives, combined with disciplined cost management as we continue to invest to support long-term growth. As we look ahead, we are encouraged by the momentum across Motion. Despite a dynamic environment, Motion is positioned well to benefit from attractive near and long-term industrial manufacturing trends.
Core MRO demand remains healthy, capital-intensive project activity continues to strengthen, and our strategic initiatives are delivering tangible benefits with exciting runway for continued performance. We look forward to sharing more on the business, our initiatives, capital allocation priorities, and financial outlook at Motion's Investor Day on December 9. Moving now to our Automotive segments. In North America Automotive, total sales in the third quarter increased approximately 2%, with comparable sales also increasing approximately 2%. The team continues to execute against our strategic priorities while managing a cautious consumer backdrop and ongoing inflationary pressures, both of which have been impacted by the conflict in the Middle East. During the quarter, North America Automotive segment EBITDA was $194 million, or 7.6% of sales.
Our profit continues to benefit from our strategic initiatives, operating cost discipline, and restructuring actions, which was more than offset by pressure from cost inflation in healthcare, rent, and freight. Bert will share more on the specific impact of higher fuel costs in his comments. Within North America, total sales in the U.S. were up approximately 1.5% for the quarter, with comparable sales up approximately 2%. Price contribution was approximately 2.5%. From a cadence perspective, average daily sales were up low single- digits in July and August and slightly positive in September. Consumers remain under pressure from higher fuel prices, persistent inflation, and the recent interest rate increase. Despite the softer environment, sales performance at our company-owned stores was solid. In the third quarter, comparable sales at our company-owned stores increased approximately 3.5%, with commercial up approximately 5%.
Independent same-store purchases were up slightly versus the same period of the prior year and have shown sequential improvement on a two-year stack through the year. We continue to execute company-owned store initiatives well, and enhancements to our commercial segments like major accounts and AutoCare are building momentum. We are also pleased with our independent owner initiatives, with our top quartile owners growing at comparable levels to our company-owned stores. We held sessions with hundreds of owners during the quarter, and the tone is positive with good alignment on our go-forward priorities. Looking at the comparable sales performance of NAPA to the end customer, which includes our company-owned sales as well as the sales out to the end customer from our independent stores, the NAPA system delivered sales growth of approximately 3% in the third quarter.
By customer type, comparable sales to our commercial customers for the quarter were up approximately 4%, while comparable sales to our retail customers decreased approximately 3%. Within commercial, we saw solid growth in all four customer segments, with particular strength in other wholesale and fleet and government customers. We were pleased to go live on time and on budget with a new distribution center in eastern Pennsylvania in the third quarter. This modern facility is the first of its kind in the NAPA network that is heavily automated with robotics to drive productivity and service in the local markets. The operational metrics are on track, and the NAPA supply chain team is building momentum with another planned building go live in 2026. In Canada, our team continues to execute well despite ongoing softer market conditions.
We saw solid sales growth again in the third quarter, with total sales increasing approximately 9% in local currency versus the same period last year and comparable sales up 1%. The Benson acquisition continues to support our performance with financial and operational results tracking ahead of plan. Turning to our International Automotive business, total sales during the quarter increased 4.5%, with comparable sales up approximately 1%. International Automotive segment EBITDA for the quarter was $141 million, up approximately 5% and 9.0% of sales, which is flat versus the same period last year. By geography, in Europe, total sales for the quarter increased approximately 4% in local currency, with comparable sales positive up 1%. Our results improved slightly from the second quarter and continue the sequential improvement throughout 2026, with notable recent improvement in our business in the U.K.
We feel confident our teams are continuing to perform better than the market, driven by our initiatives with key account customers and the NAPA brand offering. Our investments in supply chain infrastructure are scaling as intended and driving meaningful cost efficiency and improved inventory productivity, positioning the business to deliver stronger performance as the market recovers. Lastly, our team in Asia Pacific had a solid quarter despite challenging market conditions, driven by the ongoing conflict in Iran, five interest rate increases in nine months, and low business and consumer confidence. Despite these conditions, our teams continue to be focused, motivated, and executing at a high level to win profitable market share as well as adding capabilities. Total sales in the third quarter increased approximately 2% in local currency, with comparable sales up approximately 1%, which is similar to the second quarter, with trade business outperforming retail.
Our two-wheel motorcycle business had another strong quarter, with double-digit sales growth in local currency. Lastly, I want to provide an update on our announced plan to separate our Automotive and Industrial businesses into two independent public companies. As mentioned, we remain on track for the separation plan for the first quarter 2027. During the quarter, we were pleased to announce the leaders who will guide both companies following the separation. The organization design solved for continuity to build on the business momentum and capabilities to ensure each business is prepared for its next chapter. The appointments reflect a thoughtful and deliberate process by our board of directors and position both companies to execute their distinct strategies and create long-term shareholder value. Court Carruthers will serve as Chief Executive Officer of GPC, supported by Bert as Chief Financial and Operating Officer.
Court has deep relevant expertise to lead GPC and has served as a GPC director for more than a year to learn and help guide the business. Not only does he have commercial expertise, but he's a great culture fit with our teams. Day-to-day leadership of the operations will continue to be led by Alain Masse in North America, Franck Baduel in Europe, and Rob Cameron in Australasia. Jean-Jacques Lafont, Co-founder of the GPC European Automotive Business and current GPC Director, will serve as Non-Executive Chairman. Together, this is a best-in-class global automotive team with expertise and momentum for the next chapter at GPC. I'm honored to lead Motion as Chairman and Chief Executive Officer following the separation alongside James Howe, President and Chief Operating Officer, Howard Yu, Chief Financial Officer, and the experienced and talented Motion leadership team.
The go-forward Motion executive team has over 300 years of cumulative industrial, product, and customer experience, and almost all go-forward Motion executives have no change to their existing Motion roles. We look forward to standing Motion up as a public company and are confident in our ability to do so with excellence. In addition to providing leadership clarity, we have continued to progress our work on the Form 10, capital structure, and capital allocation priorities. Our operational separation work across people, systems, and contracts also continues to track to plan and is in line with our previously disclosed cost estimates. We have been active to recruit new directors and are pleased to share that information as we finalize our work. Similar to our management team, we have skilled director candidates that will add relevant expertise to the board.
Overall, I'm really pleased with the separation progress to date, and we remain focused on advancing the remaining work required to complete the separation in the first quarter of 2027. I'd like to especially thank all those, including our global PMO team, who are instrumental in executing this significant body of work. In closing, we're encouraged by our performance year- to- date. In a dynamic operating environment, our teams are controlling what we can control, executing with discipline, serving our customers with excellence, and advancing our strategic priorities that strengthen our market-leading positions across the globe. We have meaningful momentum, clear priorities, and the right leadership in place to complete the separation and position both GPC and Motion to create long-term shareholder value. Thank you to our teammates around the world for your continued hard work and commitment. I'll now turn the call over to Court.
Thanks, Will, and good morning, everyone. I'm excited and honored to be stepping into the CEO role at GPC upon the separation of Motion early next year. I'm incredibly grateful for the warm welcome I've received across the global organization. We have an exceptional and passionate team at GPC, and I'm proud to be part of it. Over my first six weeks in the role, I've spent time meeting with team members, connecting with independent owners, and experiencing our operations firsthand, visiting many stores and DCs. I came into this role with a deep appreciation for GPC's century-long history, our brands, and our position in the marketplace, and I'm excited to help continue building on this legacy. These experiences have only strengthened my appreciation for the business and reinforced my confidence in what we can accomplish together.
GPC has been delivering against a clear strategy to position the company for continued momentum following the planned separation. We will continue focusing on the priorities that matter most, putting the right resources behind them, and executing with discipline. We believe the separation gives us greater flexibility and focus to successfully compete across our global markets. I would also like to share a few observations from my time in the field. First, everything begins with the customer, the mechanic in the garage turning a wrench. This is the core of who GPC serves and how the business was built. We win by delivering the parts, products, and service that mechanics need to keep their customers and the world moving. We do this by having the right inventory, delivering reliably, solving problems quickly, and being easy to do business with.
The more we help our customers succeed, the more GPC wins in the market. Second, our people are one of our greatest competitive advantages. Their deep experience, strong local relationships, and commitment to customers are capabilities that cannot be easily replicated, and they make the difference in how we execute every day. Our responsibility is to give our teams the network, tools, and leadership they need to perform at their best while fostering a culture focused on providing exceptional service to customers. Third, we have an opportunity to move with greater focus and speed post-separation. We will have a short list of priorities, disciplined execution, and local teams empowered to make decisions closer to the customer. We will act on the best available information, learn quickly, and adjust when needed to keep getting better every day.
The strength of our model was on full display at our recent independent owners meeting in Atlanta. Spending time with our independent owners reinforced the commercial value they bring to the customers and communities they serve. They know their markets, they know their customers, they build trusted local relationships, and they bring an entrepreneurial mindset to the business every day. Just as important, they tell us what is working and what is not. Our responsibility is to listen to that feedback and ensure we are supporting both our independent owners and our company stores with the products, technology, and supply chain they need to win. Their local market knowledge, combined with GPC's global scale and capabilities, is a real competitive advantage.
At the same time, we know the right model can differ by market, and we are taking a thoughtful market-by-market approach to have the right store mix to best serve customers and drive strong local performance. I saw another important element of our investment strategy during my recent visit to the NAPA Robotics Lab and a number of our U.S. distribution centers. It was valuable to see firsthand the technology and automation we are deploying across our operations and the additional opportunities we have to expand those capabilities across the network. This technology is driving value that is practical and measurable. It's helping team members work more productively, improving accuracy and product flow, and strengthening our ability to serve customers consistently. These investments are also about strengthening our broader supply chain and improving product availability, areas where we are making meaningful progress and where we see significant opportunity ahead.
We will continue to invest with discipline and learn from each deployment, measuring what works and scaling projects that deliver meaningful results. My time in the field with our team members reinforced the strength of our commitment to customers and the value of staying close to where our strategy comes to life. Every customer interaction is an opportunity to deliver excellent service, build trust, and demonstrate the difference our teams make each and every day. The direct conversations and practical insights from our field teams are invaluable. Their firsthand knowledge helps us identify opportunities, build on what is working, and make better decisions that strengthen our business and the customer experience. I left those visits encouraged by the pride, knowledge, and commitment to win that I saw with our teams. As I look ahead, our operational priorities are straightforward.
Win with customers, build the best team and culture, listen, focus, and execute. I'm energized by what I've seen, grateful for the feedback I've received, and confident in the outstanding opportunity ahead. We have a remarkable legacy, strong businesses, trusted brands, and talented team members all around the world. At our Investor Day in December, we'll provide greater clarity on the priorities that will shape GPC's exciting next chapter of growth, serving customers, supporting team members, and driving stronger performance as the global automotive aftermarket leader. I look forward to updating you on our progress. With that, I'll turn the call over to Bert.
Thanks, Court, and good morning, everyone. Our teams delivered on another solid quarter with 4% sales growth and profitability in line with our expectations. Our results reflect our focus on serving our customers and continued execution across our strategic initiatives while advancing our work on our planned separation of GPC and Motion. Notably, we delivered on our third quarter commitments against the backdrop of a dynamic operating environment evidenced by the recent trends in fuel costs, which finished the quarter appreciably higher than our expectations in July. During the third quarter, adjusted earnings per share was $2.07, an increase of approximately 5%. Our results were driven by higher sales, particularly in industrial, gross margin expansion, and the benefits from our global restructuring initiatives, which were partially offset by the continued cost inflation in operating expenses, including the impact of the Iran conflict.
The estimated impact of the Iran conflict on EBITDA in the quarter was $16 million, or $0.09 per share. Our earnings also include an $0.08 impact from higher depreciation and interest expense as expected. Before I take you through the details of the quarter, my comments this morning will focus on adjusted results, which exclude non-recurring costs related to our global restructuring program and costs related to the planned separation of our businesses. Collectively, these items totaled $87 million of pre-tax costs, or $61 million after tax. Included in the $87 million is $21 million of one-time costs related to our separation activities, primarily related to third-party advisor fees. Now, let's turn to the details of the third quarter. Total GPC sales increased 4.2%, which included a 290 basis point improvement in comparable sales, a 90 basis point benefit from acquisitions, and a 50 basis point benefit from foreign currency.
Each of our segments delivered positive comparable sales growth with our Automotive segments increasing low- single digits despite fuel and diesel prices being up 30% and 50% respectively from the same time last year, which led to moderating demand across our geographies, particularly on the retail side of the business. Sales in Industrial continued to be strong with mid-single-digit comp growth. Price inflation was 2.5% at North American Auto, with International Auto at 3% and Industrial at 2%. Our gross margin was 38.1%, an increase of 70 basis points and in line with our expectations. The improvement in our gross margin was primarily driven by the ongoing execution of our strategic pricing and sourcing initiatives, partially offset by higher product costs from inflation. Our adjusted SG&A as a percentage of sales in the third quarter was 29.5%, an increase of 70 basis points.
On an as-adjusted basis, SG&A grew year-over-year in absolute dollars by $120 million. Foreign currency and acquisitions represented approximately $30 million of the growth year-over-year with two-thirds of this increase being driven by acquisitions. The remaining $90 million of core SG&A growth was up 5% from the prior year. The current external environment is driving cost inflation across multiple expense categories, including people costs as well as freight, fuel, and rent expenses. Higher people costs are driven by our continued investment in team members through annual merit wage increases, including mandatory minimum wage increases outside the U.S. In addition, rapidly rising U.S. healthcare costs, which are up approximately 15% in the quarter, continue to pressure results. Freight expense was a notable headwind in the quarter, as expected, with costs growing 12%. The elevated prices of diesel and fuel that I shared earlier were a significant driver of these higher expenses.
We continue to work diligently to bend the curve of rising costs in the current environment. As an example, our people-related costs as a percentage of sales was flat versus prior year despite the pressure from merit and the healthcare costs that I just mentioned, a testament to our restructuring initiatives and cost actions. Year-to-date, we've incurred restructuring costs of approximately $200 million and realized $105 million in cost savings, including approximately $36 million in the third quarter for a benefit of $0.20 per share. For the quarter, total Adjusted EBITDA increased approximately 4% with Adjusted EBITDA margin of 8.4%, flat versus prior year as the benefits from our gross margin expansion and restructuring activities were offset by higher SG&A expenses driven by cost inflation, including the impacts of the Iran conflict.
The incremental cost from the Iran conflict produced a 20 basis point negative impact on EBITDA margin for the quarter. During the third quarter, our EBITDA performance within the three business segments includes the following highlights. For the North American Automotive segment, EBITDA margin was 7.6%, down 40 basis points from last year. The decrease was primarily driven by cost inflation and cost of goods sold and operating expenses, including higher costs for freight and fuel, partially offset by our restructuring and cost actions. International Auto segment EBITDA increased 5% and EBITDA margin remained flat at 9% versus the prior year. Strong gross margin expansion was offset by continued inflation in people costs, including mandatory minimum wage increases, as well as higher freight and rent expense. Benefits from our restructuring program helped mitigate these cost pressures.
Industrial segment EBITDA increased 11%, with EBITDA margin of 13.2% up 60 basis points year-over-year. The increase was driven by gross margin expansion, which benefited from our strategic pricing and sourcing initiatives. Turning to our cash flows. Year- to- date, we have generated $817 million in cash from operations and approximately $500 million in free cash flow. Our cash flow from operations benefited from an improvement in net working capital of approximately $260 million. Year-t o- date, we have invested approximately $315 million in the business in the form of capital expenditures as we continue to modernize our supply chain infrastructure and IT systems. As an example, we are launching two distribution centers at NAPA in the U.S., one of which went live in the third quarter, with the other expected to go live by year-end. These investments will drive meaningful productivity benefits and improve service to our customers.
We also returned approximately $434 million back to our shareholders in the form of dividends. Now, turning to our outlook. As we detailed in our press release this morning, with three quarters of 2026 now complete, we are narrowing the range of our guidance for 2026 adjusted earnings per share. For the full year, we now expect diluted earnings per share, which includes the expenses related to our restructuring efforts and year-to-date separation costs, to be in the range of $5.60- $5.85. We now expect adjusted diluted earnings per share to be in the range of $7.50- $7.75, up 3.5% at the midpoint of the range versus 2025. Note, our adjusted EPS guidance does not include one-time costs associated with the separation. We will continue to be transparent and call those out as they are incurred.
While we have delivered on our commitments in 2026, the impact of the Iran conflict has impacted our business, particularly in Global Automotive, as market conditions remain challenged. As you will recall, in July, we lowered our revenue outlook for Global Automotive for the second half of the year based on moderating demand. Our experience indicates that higher energy prices from the Iran conflict are weakening consumer sentiment. Our third quarter results were in line with our revised expectations shared in July. Further, year- to- date, our results include approximately $35 million in incremental operating expenses relative to our original expectations for 2026, or approximately $0.20 per share. As we turn to the fourth quarter, we have considered the following factors in our outlook.
We expect the conflict in Iran to persist for the remainder of 2026, and as a result, we expect continued moderating trading conditions for Global Automotive for the balance of the year, consistent with what we experienced in the third quarter. Our outlook for gross margin reflects continued cost increases from our suppliers as they face higher input and shipping costs. Our global teams are working to manage any potential increases in a strategic and thoughtful manner. Broadly, we expect to pass through many of these cost increases, and as a result, we have not updated our expectations for gross margin for the remainder of the year. Given the elevated price of fuel as we exited the third quarter, we have incorporated revised assumptions on operating expenses, including higher freight and fuel costs for the balance of the year.
We now expect approximately $15 million-$25 million of incremental costs for the remainder of the year as a result of the Iran conflict. With the $16 million impact in the third quarter, we would expect an impact of $30 million-$40 million for the second half of 2026, up from our previous estimate of $20 million-$30 million. Collectively, given these factors and the impacts we've absorbed from the Iran conflict year- to- date that I shared previously, we would expect to finish 2026 towards the lower end of the narrowed range. The detailed elements of our outlook, including sales, gross margin, SG&A, and CapEx, remain unchanged and can be found in our earnings presentation. Before I close, I'd like to share some additional comments around the separation of GPC and Motion.
We are advancing our work on the capital structure and capital allocation for both companies and look forward to providing further details at our Investor Days in December. As a reminder, we will host both Investor Days in New York City, December 8th for GPC and December 9th for Motion. We hope you will join us, and please contact our Investor Relations team with any questions or for additional information. In closing, we are pleased with our performance over the first nine months of 2026 as we balance running the business, delivering on our commitments, and managing through the impacts of the Iran conflict with the work related to a complex separation of the businesses. Our teams remain focused, agile, and disciplined, and while the external environment remains dynamic, we are confident in the strength of our business and our ability to deliver for our customers and our shareholders.
Thank you, and we will now turn it back to the operator for your questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Also, I would like to remind everyone to ask only one question and one follow-up. Once again, that is star one should you wish to ask a question. Your first question is from Greg Melich from Evercore ISI. Your line is now open.
Hi, thanks. I wanted to follow up on the commentary on inflation. We had a lot of costs that you weren't expecting earlier in the year. If inflation in the third quarter was 2.5% across the business, given where we are today, what do you expect that to be through the end of the year and into next year?
Hey, Greg. It's Bert. Good morning. I think 2.5% for the rest of the year. As I said in my prepared comments, as we've gone through three quarters, we'd originally thought that benefit would be around 2 points, raised it a half a point here based on the third quarter experience, and that'll carry through to the fourth quarter. Probably not ready to call the ball yet on 2027 inflation. Assuming that the conflict persists, I think we're going to always remain in that low single digit top-line benefit. When you look beyond the top line, again, the low- single digit impact to cost of goods sold is holding in, consistent with our original assumptions.
On the cost side, to the original part of your question, we've seen it across line items, and it's probably better to talk about it through a line item prism versus overall. Freight is holding in mid single digits, rent the same. Freight was a little higher here in the third quarter than had it been trending, and I think that's on the back of fuel. Healthcare is holding in at that double-digit level, which is a headwind here in the U.S. The net of all that probably puts us around a 3-4 cost inflation percentage point impact for the year. We're working hard to offset that with our restructuring and cost actions. As just an important point, we've been able to manage people costs for the year flat year-over-year as a percentage of sales.
A lot of good discipline in the business to combat the things we cannot control.
Got it. My follow-up was, I think I heard in the prepared comments that sales in September in auto were a little softer than they were in July and August. I am just wondering if that trend has continued into the fourth quarter.
I would say the fourth quarter, Greg, it probably started as we exited the third quarter, not with an overemphasis on September, more to the full quarter trend for Q3. The fundamentals of the business across the board remain steady. I would say that from an overall perspective, we would expect the fourth quarter performance on the top line to look a lot like what we saw in the third quarter with the incremental cost pressure that I mentioned in my prepared remarks. The fourth quarter is always a dynamic quarter. We think about the holidays, and how that impacts the quarter. We also have to think about Motion and what some of our customers do on the production side as we get through the holiday period, maybe taking a little time off.
As I look at it business by business, Industrial October picked up where we left off in September. Solid trends across the Industrial business. As we think about Automotive, I think the theme will remain with solid commercial growth, with retail remaining pressured, mostly because of the Iran conflict, I think. All of our geographies, as we said in July, are feeling the impact on the Automotive side of this Iran conflict. We have assumed that persists for the rest of the year in our outlook. As we look by geography, we are going to continue to watch Europe and Asia-Pac. A steady start to Q3, but both markets, I think, are overall muted. In the U.S., NAPA is performing in line with where we exited the overall quarter rate, without an overemphasis on September.
If you remember, I think easier comps in the fourth quarter, so we feel good about the outlook on the top line for the rest of the year.
All right. Appreciate the color and look forward to December.
Thanks, Greg.
Thank you. Your next question is from Michael Lasser from UBS. Your line is now open.
Hi, good morning. This is Alexis Swasey on for Michael Lasser. Thank you for taking our questions. With North America Automotive comps improving 1.7%, yet EBITDA margin declined 40 basis points, how much of the disconnect is transitory cost pressure versus a structural change in the earnings power of the business? What level of comp would you need to consistently produce positive margin flow-through?
Hey, thanks for the question. I'll take that one. Just to frame the North American EBITDA margin pressure, that's a $6 million absolute decrease in EBITDA year-over-year, driving the 40 basis point decline. I think the impact is precisely to your question. It's SG&A, and it's related to the inflation we're feeling from the Iran conflict. We had increases in freight, fuel, and rent that totaled $15 million year-over-year. That's on the back of fuel. As I said in my prepared remarks, diesel's up 50% year-over-year, U.S. unleaded's up 30%, and that's driving that increase. The other factor there is that during the summer, we put in a merit increase for our U.S. hourly workforce at NAPA. It was the right thing to do for our team. They've been working hard and really powering through all the activities through the course of the year.
That impacted the comp a little bit in the third quarter. Had we not had the inflation-driven impact in these costs, we talk about a 20 basis point improvement in that segment margin for the quarter. I think it's really on the back of what's happening in the external environment. In terms of the algorithm for the long term, I think we'll probably wait to give you some color on that at Investor Day. We'll be able to see how we think the rest of the year is going to play out, if the conflict persists or if it's going to turn into 2027, and we'll be able to give you a little bit more detail there.
Thank you. As a follow-up, with industrial strengthening while North America Automotive probably being pressured, does this quarter change your view of the earnings growth algorithms in each standalone company, and how it can sustain that after the separation?
I'll take that one too. I think the Investor Days in December are a great time for us to discuss how we think about the earnings power for each business. We don't want to take away any reason for anybody not to come see us in New York in December, so we'll hold that one as well. But I think, look, when we think about where we're headed, we've had a really solid third quarter. In fact, we've had really three solid quarters for 2026. There's good momentum in the business. Both sides and the overall team are excited about where we're headed. We have two fantastic companies. They're built to be successful. They have size and scale. That matters in distribution. And we're going to be able to have a fantastic opportunity to update you on both in December and talk about where both businesses are going in 2027.
Great. Thank you.
Thank you.
Thank you. Your next question is from Scot Ciccarelli from Truist. Your line is now open.
Good morning, guys. Thanks for the time.
Good morning, Scot.
Hi. I am looking for a clarification and then a question. On the clarification, you mentioned the Iran conflict multiple times. I would presume that is just cost pressure, and I kind of get the freight and fuel. Bert, I think you then mentioned rent, and I think there might have been a reference earlier in the call on sales impact. If you can just kind of clarify what all the Iran conflict is, that would be helpful. Secondly, as you pointed out in the past, higher interest rates over the last few years have increased inventory carrying costs for your independent owners. As we are kind of breaking through to new highs in the interest rate environment, should we assume that part of your North American business will, let us call it, continue to remain under pressure?
Yeah, Scot, I will start with the first part of your question on Iran. I think we have isolated the Iran impact to the top line, which we talked about in July, and we moderated our outlook for the Global Automotive segment in that regard. Took about a half a point of the growth out versus our original expectations for the year. Our third quarter experience came in line almost to the dollar with our forecast for the third quarter. I would say our views on moderating demand, particularly on the retail side of the business and auto, held true, and I think that is going to be the case for the fourth quarter as well. When I think about the cost pressure, the cost pressure for Iran really lies in freight and fuel. We have given you that impact for the quarter, $16 million.
We ticked it up a bit for the rest of the year versus that second half original expectation that I gave you of $20 million- $30 million. We now see that to be $30 million- $40 million. When we gave you the $20 million- $30 million, it was based on diesel at $4.50 and on a downward trend. Diesel's now at over $6 and kind of an elevated, steady trend, up 35% from when I gave you that outlook. We've ticked that up based on current expectations. The rent expense pressure is really coming out of, as we've talked about before, renewals happening in a post-COVID period. We're seeing those being elevated versus when they were negotiated five years ago, six years ago. That thematic is playing through. I don't know that the rent piece has anything to do with the Iran conflict.
It's just overall cost inflation across the business. That's those two pieces. On the independent owner, maybe I'll pitch it to Will and Court.
Yeah. Hey, Scot, it's Court. Happy to take that one. I think a couple of comments on the independent owners. The first one we talked about in the prepared comments, the fact that the top quartile of independent owners is performing at a very similar level to company stores, which are performing well. Something we'll talk about at Investor Day and don't want to get into all of it today is just our actions to further partner with the top owners. The largest owners, the strongest owners in the network today have very solid balance sheets, are investing in inventory, are investing in people and service capability in their local markets, and we have a number of initiatives underway to more closely partner with those stronger owners.
We've also introduced some technology tools and some other programs to help support making sure we have the right inventory in each local independent store to help them win in the local market. We're really optimistic about the early returns from those programs, and we'll talk more about that at Investor Day.
Okay. Thanks, guys.
Thanks, Scot.
Thank you. Your next question is from Chris Dankert from D.A. Davidson. Your line is now open.
Hey, morning, guys. Thanks for taking the questions. I guess first off on Motion, if I look at the implied guide for the fourth quarter from a top-line perspective here, it looks a little bit weaker, both from a two-year stack basis and a typical seasonality basis. Is that just a measure of conservatism? Because I guess with the end demand broadening out here, I would have expected a little bit more on Motion. If you could comment there, it would be helpful.
Yeah, Chris, I think we're being a little bit prudent. As I said a minute ago, the fourth quarter is always a dynamic period. You got the holidays. We've seen in the past two years some of our customers slow down production in the fourth quarter, particularly as we get into the Christmas and New Year period. As I said a minute ago, the overall fundamentals are very steady. Motion has left off September and started October in a very similar place, and October is an important month. I think we're just hedging a little bit on being prudent about November, December. Again, I wouldn't overread anything. Motion's performing very well. They had a very solid Q3, as Will outlined in his prepared remarks, and we remain bullish on the opportunities in the space. Customers are enthusiastic, and I think we'll turn into 2027 with good momentum.
Yeah, that's fair, and certainly appreciate the clarity there. I guess shifting gears into NAPA here. Again, the new DC at Eastern P.A., obviously exciting. I assume we're going to talk about this a lot at the Analyst Day, but anything you can give us in terms of, is there a cost opportunity? Is there some consolidation going associated with that? Anything else you can kind of ease us with around the opportunity in the DC network for NAPA?
Yeah, sure. It's Court here, and we'll definitely spend lots of time on this at Investor Day. I think there's both a revenue and a cost opportunity. Revenue in terms of broadening the scope of the products that we have in the supply chain. So getting a broader mix of products closer to stores and closer to customers. Mission critical in terms of improving fill rates and product availability, which we're very confident will help drive further revenue. Then through the robotics and automation as well as the real estate consolidation, we also will outline some of the operating expense leverage that comes from that. So we think this is a great win. Better service to customers, great working environment for team members, and a good cost-out opportunity as well.
Chris, I would just add as well, we've had lots of data points internationally on investments like this that are proving out and getting us smarter on how we create value when we make these types of investments. As you guys know, we've been on a multi-year investment plan to invest in all things supply chain, and we're leaning into our U.S. investments now, and I think all of that previous work is going to make us even smarter and better.
Thanks for the color, guys. Definitely looking forward to catching up in a few weeks here.
Thanks, Chris.
Thank you.
Thank you. Your next question is from Bret Jordan from Jefferies. Your line is now open.
You talked about the performance of the top quartile of independents. Could you talk about sort of the gap to the average or the bottom quartile? Has the performance narrowed, or are the out-performers outperforming incrementally? I guess it seems from your comp sell into independents and the sell out you commented on, maybe there's less total field inventory of the independents in the third quarter.
Yeah, Bret, this is Bert. I would just say that as we've started this quartiling exercise through the mid part of the year, as we shared last quarter, relative to the sequential performance in Q2 to Q3, the bottom quartile actually is moving up. I would just say that I think that's an indication of, as Court just outlined, the actions we're taking are actually improving the performance across the board. We're pleased with that. To see the early innings of that start to have an effect is building momentum, particularly as we get to Investor Day and being able to share a little bit more color on all the actions we're taking. Court did a nice job outlining those a few minutes ago, and we'll get into some more detail there.
I think across the board, the inventory, it's always a place where we're trying to continue to improve. It's about the right part at the right place at the right time, as you know. That's a continuous improvement exercise, and we've seen that happen through the course of the year as well, which is why I think the bottom quartiles are moving up relative to the second quarter. We're looking forward to how that really translates into 2027 performance as well.
I think just sequentially, those bottom two quartiles did improve from Q2 to Q3. We feel like we're seeing good progress with those efforts in terms of sales out into the marketplace.
Thank you. Your next question is from Bret Jordan from Jefferies. Your line is now open.
Apparently I am up twice. You have called out on performance in the U.K. And GSF have been pretty price competitive over there. Is the market being more rational, or is it just improving underlying demand in that market?
I think it is improving underlying demand in a choppy market sequentially, and I think more importantly, it is improving controllable execution. As you know, we have made some very significant supply chain investments into the U.K. a couple of years ago, and I think to my earlier point, it is another proof point of kind of the power of those investments once they get up and running. So we are doing some really nice work. We have got a great platform in the U.K. Scale matters. So even if you have some of these local, smaller, disruptive players over time, the breadth of the offering and the capabilities that we have in the U.K., I think is a winner. So we are seeing it more from what we are doing rather than what the market is giving us.
Appreciate it. Thank you.
Thanks, Bret.
Thank you. There are no further questions at this time. I will now hand the call back over to our CEO, Will Stengel.
Thank you for joining us this morning, and thank you for your support of both GPC and Motion. We look forward to sharing more with you at our Investor Day in December. Have a great rest of your week. Thanks.
Thanks, everyone.
Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may now disconnect your lines.