50 years, we have had some anchor tenants at this Las Vegas Auto Symposium. Few, and none greater, I will say, than Genuine Parts, which was actually, as Walter pointed out, part of two companies when this began 50 years ago. Company that is undergoing some fairly significant changes, and we are going to hear company CEO Will Stengel talk about that in a minute. Just to give some thoughts on the company, it is a premier global distributor of both automotive and industrial products. The auto business best known for NAPA, and Motion Industries on the industrial side. It has been a terrific cash flow generator and a terrific generator of value for shareholders over the course of the last 50 years. We have no doubt that it will continue to be the same when the company splits into two separate publicly traded companies.
It is about 138 million shares, about an $18 billion equity Cap, $22 billion total enterprise value. We are very lucky here to have Will Stengel, the company's Chairman and CEO, along with Bert Nappier, the company's CFO and COO. They are going to talk about where this business is going. I will let Eddie lead off with the first couple of questions, but thank you very much for making this part of number 50.
Thanks for having us.
Of course.
Yeah, just kicking it off, since the last time we met here in Las Vegas last year, you have announced the planned separation for Q1 2027. Just talk about rationale behind that, why now, and yeah, start there.
Yeah, happy to. First and foremost, I will introduce Court Carruthers, CEO-elect of Genuine Parts Company post-separation. So thrilled to have Court here representing our automotive business. Separation rationale, I think, comes down to a couple key points. First and foremost, we are excited about the value creation that we think we can create as two separate companies. So, it all starts from that. I think importantly, creating a simple, easy-to-understand story across both businesses will help us achieve that end. And I think if you look at where this business is relative to where it has been over the last five years, it is at a different moment in its strategic evolution. We have spent the last five to seven years investing in the business in a very thoughtful way that will position both of these companies for their next part of their journey.
Admittedly, they are at slightly different parts in their journey in terms of how they are thinking about capital priorities, business strategy, how we are serving customers. Neither one is better or worse, they are just different. And I think when we put these two businesses into the public domain as a standalone entity, we think they will be better appreciated and create more shareholder value.
So I guess just, Will and Court and Bert, you guys can all chime in here. Thinking about the companies post-separation, what are, I guess, the one or two most exciting things that you guys are looking forward to?
Yeah, I will start on the Motion side. I think part of the 100-year history of Genuine Parts Company, Motion has been an important part of our history, but probably less well-known. As I just think fundamentally about the opportunity to tell the Motion story in a little bit more clear and different way, I think is super exciting. The business has really nice momentum. I think we are at a very interesting moment in the industrial manufacturing cycle, which is exciting as we look forward. I think as you think about our growth algorithm, we are as excited about our organic growth opportunities as we are our inorganic opportunities. All things growth, and we will talk a little bit more about that in our Investor Day.
I think from a margin perspective, lots of opportunities as we think about pricing and sourcing, as well as using technology to make the business more productive. Then lastly, a really nice cash flow, as Brian said to start us off, really nice cash flow profile that will position us well to invest in the business and be really thoughtful from a capital allocation standpoint.
Great. Maybe just to add from the automotive side, I think a couple of things, and the benefit of being separate companies, just more time, I think, to explain the stories all around. I think number one, automotive, we spend a lot of time talking about U.S. auto, which is obviously critically important, but half the auto business is outside the United States, where we have very strong leadership positions in those market. Very strong, number one, Canada, Australia, New Zealand. A number two, but significantly growing, outgrowing the market and the competition in Europe. So, some great market positions outside the U.S. I think this gives us a chance to highlight that a little bit more and make sure capital allocation is strongly apportioned in those markets for future growth.
Then I think from a U.S. auto perspective, one of the key benefits that we have, still the largest player in the U.S. in the pro segment, in the DIFM segment, and that is really broken into two different areas. On the shop side, where we have 30,000 NAPA Auto Care around the world, 18,000 in the United States. Very unique partnership with NAPA that helps drive from the shops with mechanics fixing vehicles, driving that revenue and that volume into the store network. But I think a huge portion that is kind of gone underlooked is even for our commercial DIFM business, fleet, commercial fleet, local government, there are a number of different elements within that kind of pro commercial side where we have a different competitive set and a very unique competitive advantage that we are going to continue to focus on.
Underpinning all of that, Will had mentioned the last five to seven years, the great work that has been done on supply chain and technology and investments that have been made. Those are starting to bear fruit in the U.S. auto business, and there is more to be done there as well.
Court, I should have done a better job introducing you. Given your background in distribution, can you maybe talk about what you bring to this business, particularly your time at Grainger and subsequent to that you think can help drive this business to where it needs to go?
Yeah, I think one of the things, I would say Grainger may be the best in the world from supply chain distribution, fill rate, product availability, best in class, I think, on the industrial side and maybe across any of the categories. What is super interesting on the auto side, this really is about, yes, relationship, yes, knowledge of the team to get to the right part with the right fitment, but it is really about how do you meet that car on hoist situation, 20-minute delivery in a local market. In so many ways, it really is a supply chain business, a true distribution business. We have made strides, I think, particularly in the U.S., in terms of starting to improve supply chain efficiency.
We have made some great strides on company-owned stores and priority markets of improving local product availability and fill rate to better meet that car on hoist situation. We are in the very early innings of those improvements. Again, we are the largest player in that pro segment in the U.S. I think customers want us to win. I think we have a strong right to win, and when we have really strong product availability locally, we are winning. Lots more runway to expand that opportunity. That is probably the thing I am most excited about.
Question. Obviously, your performance in Repco and APAC is great, and Europe, obviously, you are gaining share. If you think about the buckets of capital investment, is it majority going into the North American business, or because you are gaining share at Europe, you are going to throw incremental capital there? If you had $100 to spend, Europe, Repco, NAPA, could you proportion it out for us?
Yeah, and I would throw Canada in there too, with a circa 20% market share. Far and away the leading position in the Canadian market too. I think there is a balance between international, which we are in a clear leadership position. There are multiple growth opportunities, both organic and M&A. In those markets, we have made a lot of the supply chain investments already in Australia, in the U.K. Some of the supply chain things that we are doing in the U.S. have long been done in those other markets, so they maybe need less of that foundational investment and more capital available both for organic growth and M&A opportunities. We do also have to continue to invest in the U.S. supply chain, and so there does need to be a split across those two. Do you want to add something?
No, I was just going to say, as you can tell, we are excited to have Court here. He has got a great command of the facts and the business. Brian, to your point, I was a non-auto guy when I joined Genuine Parts Company, and I think what we have both come to appreciate is that distribution is how you create value in distribution is agnostic to the parts that you are distributing. Supply chain, technology, sales effectiveness, commercial excellence, all of that is super relevant. The other thing I would say, obviously, for those that do not know, Court was on our board of directors. He has been around the company for the better part of a year and a half, and so he has been largely instrumental in helping us navigate and think about capital choices and business strategy.
Again, great to have Court, and he is in week eight and hit the ground running.
Thank you.
Leaning into some of those investments going into the automotive business, you have talked about modernizing the supply chain. You have done that in Europe already, so maybe talk about the benefits you saw from there, and then what you expect as you start to modernize the North American supply chain, and what that looks like in terms of AI, automation, and how those are benefiting.
Yeah, and I think we have now seen the first of those buildings open. We were just in York, Pennsylvania, two weeks ago for the grand opening, actually last week for the grand opening of that facility. Highly automated facility, so there is definitely cost and productivity benefits coming from the automation. But I think even more importantly than that, again, this is all about car on hoist, 20-minute availability to the pro customer. So, the biggest element of the supply chain is having a much wider array of products much more closely available to the pro mechanic that is doing the work. I think that is one of the biggest benefits. So, there is a revenue growth opportunity, there is a gross margin opportunity, and there is definitely an OpEx productivity opportunity.
And you have two new DCs coming online, I believe this year or next year, and then one more in planned work. Just talk about the ramp there, how that looks like in the future, and how it will benefit the local markets that it will serve.
Yeah, I think we'll talk more about that in Investor Day and probably give more of a roadmap. But two to three a year has been the pacing over the last couple of years, so we'll give a little bit more detail on the go forward at the Investor Day. I would just say in all of these things, if I'm thinking about inventory availability, getting the store inventory right is the most important thing. These supply chain investments are the backbone that support that, so we're going to continue making them, continue modernizing the supply chain, but do it in a very measured and disciplined way from a capital allocation standpoint. Bert, I don't know if you want to jump in on that.
No, look, I think we've been really thoughtful about how we're doing this. I'll build on a point made earlier. The investment we've made outside the U.S. has allowed us to get that done in the international markets, but also bring the best of breed back to the investment we're making in the U.S., the learnings, the technology. There's no better time than right now to be investing in the DC network in the U.S., because we take what we learned offshore, bring it back, but we also have the benefit of all the technology that's at our disposal right now. We've talked about this before with this group and the broader group, an investment in robotics lab that we made in Atlanta, where we can test the best of breed technology and automation.
I think as we move forward, you're going to see us lean even more so into optimizing this network to do exactly what Court said, make sure that we've got the right- part availability at the store level and keep the flows as strong as they can be, but then use technology to drive that as well.
Kevin.
Hi. Kevin Dreyer with Gabelli. I'm over here. Hi.
Hi, Kevin.
I think everyone in this room is very familiar with your auto business, and that's kind of what we think of when we think of GPC broadly. What would you say, if you will, for Motion, what do you think is either misunderstood or unappreciated by your investor base or investors broadly about that business?
Yeah. It's a great question. I think first and foremost, I mean, Motion is the distant number one leader in industrial distribution in the markets in which it serves, and yet it's got 6% market share. We operate in roughly 150 total, $70 billion serviceable market, will be roughly $9 billion. Our next closest competitor is about half our size. It's a fantastic break-fix service-oriented business. The Motion customer is the maintenance and engineer expert on the factory floor that's fixing all the problems of the day to keep the factory up and running. In the same way that we've got a break-fix business model in automotive, we have that in industrial. Hence why a lot of the investments and the strategic initiatives and sales effectiveness and pricing sourcing have all been super effective in the Motion business over the last five years.
From 2019, we've seen significant margin improvement. As I said in my opening comments, I think we're in the really early innings about share of wallet. We're distant number one, but we have a right to win more wallet share in our existing customers, which is really exciting. I think the fundamentals of the underpinnings of the end markets are really attractive, not just near term, but long term. AI manufacturing build-out has created a nice halo effect on all things manufacturing that we're enjoying, so I think that's a medium-term opportunity as we move forward. I think there's just a lot to like. Again, when you're on a 30-minute earnings call and you get eight out of 10 questions on auto, or maybe 10 out of 10 questions on auto, we'll have an opportunity to answer some of those dedicated questions as a standalone company.
Looking forward to the opportunity.
Michael.
Good morning. It's Michael Lasser from UBS. Both segments have seen a nice nominal sales benefit from some inflation that's been passed through for several quarters now. As you move into next year and the pieces split into two, how are you thinking about the balance in your sales growth between both pricing and units? To the extent that more of the growth continues to come from inflation, is that a good guy for your ability to generate expense leverage in the business, or is it a not-so-good guy because it also means that your employees are having to be paid a little bit more to deal with the inflationary pressure in the environment? I'd be curious in both sides, and maybe Will could start because we want to give the Motion business some love.
Yeah, look, I think we feel good about the, as I just alluded to, the fundamental volume drivers of all things industrial. I think we've been pretty consistent in our commentary about low single-digit inflation on the top line. We think kind of steady as you go, low single digit's a good thing for distributors, and that's kind of how we've been managing the business on both sides for that matter. We are in an inflationary cost environment. We expect that to continue, and we've been managing through that reality for many years now, and I think executed pretty well.
We're always thinking about levers to pull to offset cost inflation, and we're also always thinking about strategic pricing work and gross margin rate management, both on pricing and sourcing side to make sure that we're navigating a world where you're kind of living in that low single-digit top-line inflation world. I would expect more of the same.
Michael, I'll just add to that. I don't believe that, as we're constructed today, the fundamentals of the inflation to the top line or the pressure we feel on cost of goods sold inflation is fundamentally different between the two. When we've been talking about low single digits, and I talk about that on the earnings calls, that's true for both businesses. I don't think the separation creates a moment where there's going to be a material dislocation or inflection of the two points. We see it pretty clearly in the data on both sides, and I think it goes back to Will's point about how thoughtful we've been about how we pass through costs and how we really work with our customers and think about the medium and the long term. That's a really important part of our philosophy.
I think the most important part of the equation right now is the day-to-day work in the trenches that we all need to do on cost inflation. We see the predictability in the top line, we see the predictability in cost of goods sold, but it's the cost inflation in the SG&A where we have to be really, really thoughtful. That means we need to be doing everything we can on both sides to be more efficient and more effective. Streamline costs where we can, deploy efficiency gains where we can. Court talked about our supply chain investments in the U.S. Those are going to bring inherent efficiency gains, and we've already seen that internationally. You heard us talk about on the earnings call a few weeks ago about some of the costs that we're all facing, and this is not just GPC, it's everyone.
Diesel fuel's up 50% year-over-year. $6 a gallon for diesel is causing some behavioral shifts, but it's also causing pricing and pressure in our operating expenses. When you think about some of the line items beyond that. Of course, to your point, there's going to be inflation in wages. It's just a cost of doing business, and we have to address that every year, and we have to invest in our team members, so we have great teams on the field to go win every single day. The things that we can't control, we have to combat with other elements. Healthcare would be an example, double-digit increases in healthcare.
I know many companies, including us, are facing high single-digit increases in IT costs, and that's a function of what's happening with the explosion of data centers and AI, and it's increasing the cost of what we get passed to us for the services that we purchase. I think it's why we're being so thoughtful about the cost actions we're taking in the business, some of the restructuring we've done, which has provided tremendous benefit this year to offset some of that pressure. That'd be the place that I would say both businesses will continue to focus as we separate in the first quarter of next year.
Well, Will and Court, I guess, one of the overhangs, I would say, over the last year in GPC has been the idea of the dis-synergies that have come from the separation that are clearly growing pains that you are needing to get through. I know you are going to discuss this a lot at your respective Investor Days in a couple weeks, so maybe take this as a trailer or a little teaser trailer for that. Talk about that process, where you are, where you want to be, and what are the major hurdles that need to get overcome to get you to where you want to go?
I will start with a few observations. Number 1 is these businesses were managed and operated independently. So, while we shared philosophies on strategy, et cetera, there is no shared customer-facing roles. There are very few shared facilities, separate ERP systems. So, operationally, part of the calculus on creating two companies was that trade-off between dis-synergies versus being together. So, we feel really good about that, and I think we have been pretty thoughtful over 2026 to provide incremental information on the math associated with creating two companies. The second observation I would make is probably one of the most proud elements of this transaction for me has been what we call our internal PMO office, which was very intentional that it was a group of people on both automotive and industrial, cross-functionally and globally.
We designed that operating cadence to make sure that we did not distract the business from taking care of customers as we went through that. We meet every week. We have got a lot of dashboards, amazing communication amongst the teams, and we are very much on track with all of the big milestones, including kind of a dry run here in December to be two companies. So, really, really proud about executing the transaction, and then also just philosophically, I think we are in good shape to run two independent businesses without a lot of distraction.
Maybe you could talk, Bert, about the cost down.
Yeah, sure. I got both microphones now.
That is very rare for the CFO.
Extra good answer.
I think, Brian, when we came out early in the year and talked about the level of dis-synergy, $50 million-$75 million, I will build on Will's point, the operational complexity, we did not really have to deal with that. It does not mean that it is not complex and we do not have activities that the PMO is addressing, but I would put them in three big buckets. One, we have some shared contracts. Two, we do have some back office systems that are shared. And three, we have people and process that we had put together to be more efficient. A lot of those are in transactional areas like finance, back office functions. The PMO has done an outstanding job of navigating through all of that. I agree with Will, we are in great shape.
The dis-synergy is born out of having to go renegotiate some contracts that were under the GPC flag for each individual business. It is having to separate systems and create second instances. Think about a financial back office system as an example. Thirdly, we are going to have things that were together. Think about payroll was done as one organization. We are going to need two payroll teams. That is where that $50 million-$75 million came from of dis-synergy. We are tracking within that range, so we feel really good about the original estimate we made and where we are going to land when we separate next year. The same on the public company cost for Motion. We said $50 million-$75 million to stand up the public company for Motion, and we feel really good about that estimate at this point.
When we gave that $100 million-$150 million range to start the year, we are going to land in that zone, and we feel good about that just based on how crisp the work has been. I think these things always have twists and turns, but that is why we gave you a range, and we feel good about where we are.
Maybe I could just add. I would just add to that, I think looking at this both from the director perspective and now running the auto side of the shop, that one of the things that happens is in a holding company environment, you have certain structures that facilitate different businesses and different industries. For me, one of the biggest benefits is GPC will become after the split, and is becoming already as we are getting closer to the split, a pure operating business only focused on automotive. I think as we look at the whole cost envelope, there are some opportunities of becoming just solely focused on one line of business that probably creates some efficiency upside down the road, and we will talk more about that at Investor Day.
I would make the same point on Motion to be a new public company. I think we will have to evolve into that cost structure, and there is inevitably opportunities over the medium term to get more efficient and productive.
Is there anything about Motion or, I would say, new GPC that would change how return to shareholders is thought of? GPC has had centuries worth of dividend increases as maybe a primary tool? Is there anything that we should think about in each business that may be different?
Maybe I'll take that one to start and let my colleagues chime in along the way, and I'll raise it up a level as we think about capital allocation, Ryan. Both businesses have been disciplined on capital allocation across the years. GPC in the aggregate has been extremely disciplined on capital allocation. I think when we start with Motion, you'll see Motion really come out and focus on organic growth. They'll have nice opportunities for M&A, so I think those will be priority areas for Motion as they think about capital allocation, and then focus on the return to shareholders after you think about how you're going to invest in the business. I'll build on Court's earlier point about the U.S.
I think on the GPC side, the RemainCo side, you'll see the business from a capital allocation perspective focus on CapEx and investment in supply chain, modernization of the supply chain and technology, along with some M&A along the way as well. Then we'll be extremely thoughtful about the return to shareholder on that side of the house as well. We won't front run anything that we might share at Investor Day on capital allocation and shareholder returns, but I will say that this moment has created the opportunity for both businesses to be extremely thoughtful about how to tailor the capital allocation to the individual strategies of each business that Will and Court have talked about this morning, and make sure that we're aligned and stay true to that discipline we've always had.
Invest in the business and make sure we're doing something from a return perspective for our shareholders.
On that, as we think of capital allocation and capital structure, not looking for any previews or answers ahead of the Investor Day, but just thinking about the supply chain financing program and how that's an integral portion of especially the automotive business, just thinking how that plays into your decisions on capital structure.
Well, look, I think supply chain finance is the heartbeat of many parts of the automotive aftermarket. It will continue to be so for GPC as we move forward. I do not think we will use supply chain finance on the Motion side. It's just not part of that industry. It was a grossly immaterial part of our program today, and I think as you look at Motion moving ahead, you will not see a deployment of supply chain financing on that side of the house. But it is a part of the way the aftermarket works, and it will remain a part of our structure moving forward. We've said when we came out that we're targeting an investment grade for both businesses, and so we'll continue to believe that they're I continue to believe that they're both investment-grade businesses.
As you all know, the investment-grade rating is an important aspect of the automotive side for the supply chain finance program, and so that's something we're very focused on. But we'll be working with the rating agencies on those conversations, but also just continue to believe they both, because of their size and scale, because of their track record, because of the great cash flows, because of performance, they both warrant an investment-grade rating as we move ahead.
I think we're bumping up on time here, but Will, Bert, and Court, thank you guys so much for coming, 50th and GPC in general, for all 50 years, and looking forward to 51.
Yeah, thanks, guys.
Will, I think you will be hearing from me on the Motion side too, so you just can't quit me just yet.
Fantastic. Thanks, everybody.
Thanks for having us.