Will Stengel
President & Chief Executive Officer at Genuine Parts
Thank you, Tim, and good morning, everyone. Welcome to our second quarter 2024 earnings conference call.
Before we turn to the results of the quarter, I'd like to share a few thoughts as part of my transition into the CEO role over the last 45 days. First and foremost, it's an honor and a privilege to serve as only the sixth CEO in Genuine Parts Company's nearly 100-year of history. GPC has a special culture, which was founded on taking care of our people and offering solutions to our customers efficiently and consistently. This has served our business incredibly well over the years, and will remain a core element of our foundation.
As part of the transition over the last several months, I've spent time engaging with our teammates, customers and suppliers around the world. I'll share a few key messages that have come out of those discussions and that are areas of emphasis as we move forward. First, leverage our culture as an advantage. We have a unique and differentiated culture. Our global engagement data shows the vast majority of our employees are incredibly proud to work for GPC. That's a fact of which we are proud and is a testament to our strong, consistent leadership over the years. We must nurture our culture to extend our unique advantage, but we must also continuously evolve with our customers and our markets.
Second, build high-performing teams. Our talent strategies have been intentional, as we continuously work to be an Employer of Choice. We have a capable group of leaders around the world that have aligned values and a clear understanding of our shared vision. But we amplify our impact when we relentlessly build high-performing teams throughout the organization, who are energized to work together, solve problems and deliver results.
Third, capture our exciting opportunities. We streamlined GPC to focus on two core businesses, with market-leading positions and significant and exciting opportunities. We believe size and scale creates an advantage. And when we work together, as we invest in capabilities and share best practices to solve common challenges, we act faster, we're more efficient, and we create value.
Four, focus and execute our defined plans. We believe we have the right strategies and initiatives in place. We've worked together over the last three years to four years as a global organization to understand our opportunities and prioritize the work that we're doing. We align globally around five key priorities, including talent and culture, sales effectiveness, technology, supply chain and emerging technology, complemented by a disciplined acquisition strategy. This focused approach is not changing. We're intentional, we're disciplined, and we're leveraging expertise around the world to reduce complexity, improve the customer experience, deliver profitable growth and increase productivity.
And lastly, play to win and continuously improve. Thanks to the hard work of our teammates, we've made great progress as a company over recent years. But we're focused on continuous, sequential improvement to build on our momentum. We can't be satisfied with good, instead striving to be great, always working to be better and faster in all that we do. Overall, it's fair to say I'm more energized than ever about the opportunities we have as a company and the future for Genuine Parts Company. I want to thank each of our over 60,000 global GPC teammates for their ongoing passion for serving our customers. In addition to serving our customers every day, our teams are executing and delivering on a broad set of initiatives, while navigating a dynamic and challenging macro-environment. Thank you to all, as always, for your good, hard work.
Now, let's turn to the specifics of our quarterly results. A few highlights for the second quarter include total GPC sales of $6 billion, which increased approximately 1% versus the same period in the prior year and included a tough start to the quarter with particularly weak sales month in April across both segments. Total Company gross margin increased 50 basis points, with continued execution of strategic sourcing and pricing initiatives. And in May, we announced the acquisition of Motor Parts and Equipment Corporation, our largest NAPA independent owner in the U.S., with a network of 181 locations across Illinois, Indiana, Iowa, Michigan, Minnesota and Wisconsin. It's a great example of our ongoing initiative to own more NAPA stores in priority markets.
Our second quarter results were below our expectations. The variance can be attributed to three key themes: weaker than anticipated customer demand in Industrial, accelerated softness in Europe and choppy demand in the Automotive aftermarket in the U.S. Many factors, outside of our control, including higher interest rates, geopolitical uncertainty, and persistent inflation, are driving overall weaker customer demand. This weaker demand environment and ongoing cost inflation resulted in adjusted earnings flat year-over-year for the quarter, which Bert will cover in more detail shortly.
Looking at our results by business segment. During the second quarter, total sales for Global Industrial were $2.2 billion, a decrease of approximately 1% versus the same period last year and comparable sales were down 1.6%. When we look at the sales performance for our Industrial business, the main headwind remains lagging Industrial production activity. Over the past 20 months, manufacturing PMI readings continue to be in the longest period of contraction since the financial crisis in 2009, as represented by a PMI Index below 50. While we saw a positive reading in March during the second quarter, the monthly PMI readings reverted back into contraction territory versus our cautiously optimistic expectation of an improving backdrop coming out of the first quarter.
From a cadence perspective, average daily sales were softer in April and relatively flat in May and June. In addition, the higher interest rate environment and an election uncertainty is curbing larger capital spending decisions across our diversified customer base, as they remain cautious.
Looking at Motion's results across its end markets served, we're still seeing mixed performance across the board. Five of our 14 end markets showed positive growth during the second quarter, which was in-line with the first quarter, with relative strength coming from mining and chemicals, offset by weakness in equipment and machinery, fabricated metals and aggregates and cement. Despite the market softness, Motion's Corporate Account customer base, which represents approximately 45% of the business, continues to perform well and is showing positive growth, which is a true testament to Motion's strong value proposition. Additionally, during the second quarter, the Motion team successfully renewed several key multi-year Corporate Account agreements and remains active with various well-defined field sales initiatives.
Industrial segment profit in the second quarter was $277 million, down approximately 2% versus prior year and 12.4% of sales, representing an approximate 10 basis-point decrease from the same period last year. Our business in North America performed well despite the softer sales performance, but was offset by pressure from our business in Australasia, given the challenging local economic environment and cost pressures.
Turning to the Global Automotive segment. Sales in the second quarter were $3.7 billion, an increase of 2%, with comparable store sales decreasing 0.6%. During the quarter, all of our Automotive geographies showed positive sales growth in local currency. Similar to the first quarter, the Global Automotive sales benefit from inflation remained less than 1% in the second quarter, and we expect the same in the back-half of the year. Global Automotive segment profit in the second quarter was $314 million, down 4.7% versus prior year and 8.4% of sales, representing a 60 basis-point decrease from the same period last year. Our second quarter results for the Global Automotive segment reflect pressures from a challenging sales environment across our geographies, combined with inflation, driving higher costs and outpacing sales growth.
Now, let's turn to our Automotive business performance by geography. Starting in Europe, our team delivered total sales growth of approximately 8% in local currency and comparable sales growth of approximately 1%. We've seen a broadening in the moderation in demand across our geographies in Europe through the quarter. We believe this is driven by an incrementally more cautious consumer as well as a reduced sales benefit from inflation, which is also now less than 1%. Despite this, our teams are focused on serving our customers, delivering on our strategic initiatives, and delivering above-market performance. We're winning share with target key accounts and the NAPA brand expansion continues to be a differentiator. For 2024, we're on track to deliver sales of NAPA branded product in excess of EUR500 million, above our initial internal target. Our ongoing bolt-on acquisition activity also continues to have a positive impact and create value in Europe.
In the Asia Pac Automotive business, sales in the second quarter increased approximately 3% in local currency, with comparable sales growth of 2%. Similar to last quarter, this performance compares to a high-single-digit growth in the same period last year. Sales for both commercial and retail increased in the second quarter, with retail showing relative strength. The macro-environment remains challenging in the region, but the teams are executing well to grow in excess of market and take advantage of their industry-leading position.
In Canada, sales increased 1% in local currency during the second quarter, with comparable sales decreasing approximately 2%. Our Canadian team showed sequential improvement from the first quarter, despite ongoing pressure from a more cautious consumer and difficult macro-environment. Sales in automotive and heavy vehicle performed similarly during the quarter, with both having slightly positive growth.
In the U.S., Automotive sales increased 0.5% during the second quarter, with comparable sales decreasing 1.5%. This represents a slight improvement in our reported results sequentially from the first quarter and was generally in-line with our expectations. As we looked at our sales cadence through the quarter, average daily sales growth was pressured in April and then showed solid, sequential improvement throughout the remainder of the quarter. Our overall results also benefited from our MPEC acquisition in May.
From a customer segment perspective, sales to our commercial and do-it-yourself customers were both slightly down during the quarter, with commercial outpacing do-it-yourself. For commercial, fleet and government, auto care and other wholesale were all essentially in-line, while major accounts underperform the group, driven by continued cautious end consumer, as we're seeing elevated levels of deferrals from customers on certain repairs. For sales into our independent store owners, we saw another quarter of more normalized buying behavior, which is a trend we believe will continue throughout the balance of the year. We have active initiatives across our U.S. Automotive business, and we're encouraged by the progress and the improvements that they're delivering.
During the second quarter, we saw further improvements in inventory fill-rates and stocking levels for specific categories where we had opportunity. Additionally, the team continues to elevate the execution in our stores and DCs, which is driving better customer service metrics. We're pleased with these results, but we're intensely focused on continuous, sequential improvement.
And finally, we're making good progress on our initiative to evolve our operating model at U.S. Automotive to own more stores in selected priority markets. Our recent acquisitions of independent stores are being integrated into the NAPA network, with a focus on improved performance and synergy capture. In parallel, we continue to partner with our existing network of independent owners who play an important role to help us serve our local markets. Our current in-flight initiatives are designed to improve growth and operational excellence in both Company-owned and independently owned stores.
During the second quarter, we acquired 242 NAPA stores from our independent owners as well as competitive stores in key markets. We're leveraging our disciplined integration playbook as we integrate these stores into our owned store base. We'll continue to make methodical progress with our strategy of owning more stores in the second-half of the year as the pipeline remains active. Although, we don't expect the recent acquisition pace to be linear through the year.
With all these evolving factors in mind, we moderated our 2024 outlook for sales and earnings per share. We believe it's prudent to adjust our expectations for the second-half of the year based on the current information available to us, particularly, as it pertains to the Industrial and European market outlook. And Bert will provide further color in a moment.
While our quarterly results reflect a softer economic backdrop than we anticipated, our in-flight initiatives and fundamental prospects for our business remain robust. Within Automotive, industry fundamentals like miles driven, the age of the car park, and new and used vehicle prices remain supportive. We benefit from the fact that NAPA's core business serves the commercial customer, where many repairs are non-discretionary and break-fix in nature. We like this position, as we view the commercial customer as the growth engine of the industry, given the increasingly complex vehicle fleet. Within Industrial, our business is well-diversified across 14 and growing different end markets that cover a wide range of the manufacturing economy, and we're positioned well to take advantage when economic conditions improved.
Studying PMI cycles over time, we see a pattern of long periods of attractive growth once the Index inflects into an expansion territory. Motion's highly technical sales expertise and solutions-based selling drives deep relationships with our customers and helps to keep their operations functioning effectively every day and in every market cycle. As the market leader, we believe we're well-positioned to capitalize on the eventual improvement in the manufacturing economy near- and long-term, as we expand our customer base and grow share of wallet in this fragmented market.
Lastly, before I turn the call over to Bert, on behalf of the entire Company, it's only fitting that I take a moment and extend our gratitude to Paul Donahue not only for his tenure as CEO, but for his many contributions to Genuine Parts Company over his 20-year career. Under Paul's leadership as CEO, the Company strategically evolved and transforms for the better. A few highlight accomplishments under Paul's leadership. He simplified the GPC business mix to enable strategic focus on our Automotive and Industrial segments. We championed the expansion of GPC around the world, growing our global footprint from six countries in 2016 to 17 countries in 2024, including the transformational acquisition of AAG in Europe. He led us through a pandemic and kept our teams safe. He kept our culture thriving and he kept our teams operating to ensure we took care of our customers. He accelerated strategic investments of over $2 billion in growth capital, including the transformational acquisition of Kaman Distribution Group to extend our Industrial leadership position, and obviously, many other accomplishments.
Altogether, since 2016, GPC has grown its sales from $15 billion to approximately $24 billion. It goes without saying that Paul's positive impact on GPC has been remarkable. His ability to lead our teammates around the world has been inspiring, and he's a tremendous steward of our GPC culture, importantly, a good friend to all, and we certainly look forward to his continued counsel in his role as Executive Chairman. Thank you, again, to the entire GPC team around the world.
And with that, I'll turn the call over to Bert.
