Genuine Parts Company (GPC) Earnings Call Transcript & Summary

Well, we are at the top of the hour to go and get started. We'll keep trickling in. Hi everyone in the room, I'm Dan Imbro, I'm the auto and hard lines analyst at Stephens. Thank you all for joining us for Genuine Parts presentation. This will be a fireside chat. I'll start with Q&A, but please ask questions. If you have them, have some investors that couldn't make it, they e-mailed question. So I'm sure we'll have plenty to talk about. But from the company pleased to have Bert Nappier, CFO of 7-ish months almost now. So he kind of came this year and he's taken over a little bit. So yes, thanks for joining us. And obviously, Sid Jones from IR and would be remiss not to include the VIPs here. But thanks for joining us.

Yes. Thanks for having us. Appreciate it.

Yes. So, Bert, I want to start, obviously, I think was in the story -- but maybe twofold. Could you spend a couple of minutes giving an overview of different segments of GPC. There's a little bit more going on here than some of your competitors? And then also, a bit on your background as you joined the company, what attracts you to the opportunity that you saw to make switch?

Yes, for sure. And thanks again for having us. Thanks to all of you for joining us and coming in. It's a pleasure for us to present and be here with you and share the story of GPC. I'll start kind of at the very top, back to Daniel's question about the business itself. Some of you may be familiar, some not. We're a $22 billion global business that operates in 2 principal segments. So the industrial side and our motion business and our Global Automotive business. That $22 billion is split probably 60-40 is the best way to think about it. That's an approximate split of the 2 with the Global Automotive being the 60%, Industrial being 40%. We're in 10,000 locations across the world, 17 markets. So have a great size and scale to the business, a great place of strength that we have enjoyed a very nice year this year and then coming off of a good year last year as well. When we talk about the automotive business, that's a $250 billion market globally. We've got about an 8% share when we look at how we think about the business and how we measure that. The business is about 80% do-it-for-me. And so that's our place of strength. We see that as the long-term growth engine for the business. And so we come from a place of great strength. And we go to market primarily as the NAPA brand. So many of you will be familiar with the NAPA brand and how that business has grown over nearly 100 years. NAPA will celebrate 100 years in 2025. GPC celebrates 100 years in 2028. And so we've got a great brand that's associated with availability and service and quality, and we do that across 9,500 locations around the world. On the Industrial side, we're going to market as Motion Industries. We've also been in that business for a very long time. So the 75 years of Motion. The market leader with about a 5% share in the U.S. in a $200 billion market. So really nice competitive strength there. We had a strategic acquisition this year, the #3 player in the market, KDG, and that's been going very, very well. And we benefit from size and scale in the Motion business as well. We've got about 800 locations in the U.S., about 12 million parts in inventory. And so a really nice offering for our customers, and again, focus on availability, quality, service, value-add services within that business. 2022 for GPC has been an excellent year. So we're very blessed to have a nice performance this year. Sales year-to-date, 17.8%. That's on a 12.1% comp, and we'll be looking to grow EPS for the full year somewhere in the 16% to 18% range as we close out this fiscal year. So we're excited about that. Last part of your question about me. I started at GPC on February 28. So I'm a little over 8 months into the role, I took over as CFO on May 1 from Carol Yancey. Carol is a legend. I followed a G.O.A.T. And so anybody that's ever done that knows that that's tough. But I come from 17 years at FedEx. And so prior to that, I started my career in Memphis, Tennessee, at Arthur Andersen stayed at public accounting about 7 years between Andersen and Ernst & Young. Then went on to a small public company and found my way to FedEx in the summer of 2005. Variety of roles across the years at FedEx. Went to Europe in 2015 to lead a very large acquisition there. Became international CFO and did that for a couple of years, and then I ended up running the FedEx business in Europe for the last 3 years we were there. So President of FedEx Express in Europe and then went back to Memphis in a corporate role in finance and then GPC called and just too good of an opportunity to pass up. So many of you know it's an exciting time to be a public company CFO and to be a first-time public company CFO, that's always a goal for many finance folks. So this is a great opportunity for me to come into a business that has an amazing history, legacy, heritage, great financial discipline. And the attractiveness, to your very pointing question, of the role is just the brightness of our future. We have an amazingly bright future. We're at a pivot point in a company that's got a great history with 90-plus years but so much ahead, and I'm sure we'll cover a lot of that today. But I'm excited about being here. I've had a great first 6 months. I have an awesome team and an awesome leadership team and just a great 2 businesses to be a part of.

Yes. Well, it's a lot to talk about so maybe I'll start with automotive. You mentioned the momentum this year. It surprised us and you've exceeded your guidance I feel like each quarter. Are you able to parse out how much of that has been GPC's initiatives you rolled out? And maybe you can talk about some of those versus the market has been strong and pricing has accelerated and maybe what some of those macro drivers are? Can you parse those out? And then when you talk about the momentum, maybe into next year, I know you're not guiding, but which of them are continuing, which of them would be more isolated to this year as you think about the drivers?

Yes. I'm not going to parse it out maybe as quantitatively as perhaps folks would like, but maybe qualitatively I would say that, sure, share gains are part of what's happened. We've seen share gain. We're pleased with that. When I think about where share gains come from, I think about small and medium. So we think the share donors are small and medium businesses, some of whom may have -- many of those small and medium businesses are generational family businesses, demographic situations or succession may play into how they exit that business or perhaps the pandemic had a color on that, maybe of late supply chain. So we think supply -- share donor comes from the small and medium, and we've seen that to a degree this year. I would say the substantial majority when I kind of try to parse it out for you more qualitatively would come from our own actions and the things that we're focused on. The team has just done an amazing job of executing across both segments. I know we're talking about automotive, but -- when we think about initiatives and what's driving our success this year, we think about immediately investments we're making in supply and supply chain management, category management and pricing. Those are probably the big 3 that I would point to. Those investments come from the use of technology and the technology that we're leaning into and -- is allowing us to drive the business forward, I think, is a big differentiator for us. Being smarter about how we manage the supply chain and being really smart about category management. In this environment right now, what we've seen is that availability is actually the thing that our customers are focused most on followed by quality service and then lastly, price. And so making sure you've got the right part at the right time in the right network is a big focus. Technology and our analytics tools have been able to help us do that not only on the supply chain, but the category management and then, of course, pricing. And we have some big investments we're making in pricing tools and technology to make us more nimble and more real time and more scientific. And I think those things, you talked about how they carry into '23? Those things carry into '23 because they're not episodic or tied to what's happening in '22. They really have a tailwind that drives us forward, not only for '23, but I think beyond.

Yes. And I was going to ask you, so the tech you mentioned, is that something you developed in-house? Is it with typically a partner -- is that a GPC specific. I'm trying to think about where that is and what inning would you say we're on implementing some of the pricing initiatives?

Yes, I would say pretty early innings. I know our VP of pricing well, and if she were here, she'd want me to emphasize that we're pretty early innings in the pricing work. But we've seen nice results. And the technology side, I think historically, just like many companies across the U.S, a lot of technology was homegrown. We're really making a pivot towards more modern technology platforms and most of those would not be anything that we would find homegrown or create legacy issues from a maintenance and ability to maintain going forward. So the lean is more making sure we're really taking advantage of the tools and technology that are available to all companies thinking about cloud and some of those concepts.

Topical for the space couldn't go too deep without talking about inflation. And just -- it's been benefit of the industry, very price rational, pass it through. How has that progressed through the year versus your expectations? Are you seeing any alleviation or pushback from your consumer on those price increases? And again, think about next year, I mean, some of your suppliers are here talking about trying to pass through additional price increases going forward. And I guess, what's your expectation for the consumers' ability to accept that?

Yes. Let's start at the kind of very highest level on inflation from a macro perspective. We talked about this in our third quarter call. And our view on inflation at this point is that we've seen it stabilize. We think it's moderating at this point. So inflation started well before I arrived at GPC in this business probably in the third quarter last year built into the fourth quarter and then has sequentially built throughout the course of this year with -- what we see, and again, this is our view, as of Q3, this, we think, is the peak. We forecasted for fourth quarter to be at this level, same level as Q3. So we see that moderating. And when I talk about that moderating, we talk about Q3, Q4 being at this level. That stabilization, then how it carries into 2023? I'm a pretty firm believer that monetary policy that's happening here in the U.S. and with other central banks is going to have an effect and a desired effect. There's a lot of debate about that. But I feel like it will. I think we saw a little glimmer of that last week with the CPI report and bringing inflation down just a touch. And so as we look ahead and you think about this lagging effect of how inflation impacts businesses and supply chains and how it cascades through, I think you'll see that that kind of Q4 level would almost have to persist into Q1. And that is inherently higher than Q1 a year ago because we were still in the build cycle of inflation this past first quarter. But look, I think as we've been managing it this year, we've been managing it through the prism of trying to do our very best to maintain our gross margin rate. That's our focus. And so -- as you said, the industry pricing has been rational. It continues to be rational. We're not seeing any behavior that has changed that overarching view in any appreciable way at all. Our suppliers have been asking for price increases as you would expect. But we have an awesome relationship with our supply chain and we're both focused supply and our business on getting our customers the right thing. Availability again is the driving principle and so we're working together very well and have that customer in mind. And when you have that, you're going to land in the right place. We've been very fair and balanced across both sides. And I think we've done a pretty nice job through the course of a very tough and dynamic year of maintaining rate at the right place. So as we look ahead, that's kind of some early views on 2023, hopefully, some building blocks that make sense. I also want to point out that our businesses are impacted by inflation in different ways. So the Automotive business tends to see a little higher impact of inflation versus Industrial. Industrial is more low single digit, a little bit of a different business model, less sensitive to import from China and some of those price increases there and actually very little import being a North American business with U.S. sourced products and not a lot of wage impact either because wages were already higher in that Motion business. The Automotive feels it a little differently. And so we're kind of high single-digit impact on inflation in the Automotive business throughout the course of the year. The second part of your question, I think, was on consumer. Now we're seeing consumer -- yes. So look, consumers have been very resilient this year. It's been interesting to watch with all of the dynamics swirling around, we've seen the consumer stay very resilient. And in many cases, we have to think about the fact that on the Automotive side, a lot of what happens is nondiscretionary, right? We're in a different kind of market than other consumer-facing products where there's so much less discretion with what we do. Right now, the most economical way for folks to stay on the road is to fix the car they have with new car availability at lower levels, new used car prices have been high, they're moderating a bit. And so we've seen through the course of the year that the most effective way for folks to stay on the road is to fix the car they have. And that has provided a lot of resilience in what we've seen. And quite frankly, I think we'll see that continue going forward and not much bend in the curve there either. We certainly haven't seen it to date. And I think the thing we have that's a strength for us is just an ability to meet our customers where they need to be. So if they're having a little bit of budget pressure, our great lineup of products with a good, better, best product lineup allows us to meet the need of getting your car fixed with where your budgetary considerations may need to line up.

That makes a lot of sense.

How much of your business is basically supply [indiscernible] .

Most of our business, I'd say, probably in the low single digits, 5%.

[indiscernible]

No. Our business is at 80% DIFM and...

[indiscernible]

Yes. And we have a great footprint across the U.S. So we have 17,000 auto care locations. And our OEM exposure is pretty low in that kind of 5% range. And the do-it-for-me is about 80% of our total business. DIY is about 20%.

So it is like the most of your consumers think that they're going in the shop. I mean the mechanical system is passing through an gets us to get an enterprise obviously to consumers, but it's pretty much past the [indiscernible]

No. I mean, look, I mean, consumers -- look, you can't ignore that in this environment. It's a tough environment for consumers. I mean, there's a lot of things happening out there, and you can't ignore that their budget carry considerations. A consumer might not push back on getting the car fixed, but they might say something like, "Okay, well, do I have to have the premium brake pad or the premium air filter. And hey, can you help me out? Do you have something that still is great quality." And that's where NAPA comes in with this amazing lineup of products and the good, better, best and in all cases, high quality and availability. And so that's where you might see just a little consumer discretion of how I get to the ultimate answer, but not the ultimate answer changing of getting the car fixed.

So with your data, I know of signifying to your systems there attractive stuff. Are you able to -- there's a lot of debate of basically get over your own cars now on average. Where -- what can you tell on your data of what age that vehicle is to where you start seeing a drop off in demand from the DIY or do-it-for-me customers? You know what I mean, we are going it might be like, well, you hit a certain level of age and then, okay, that's when basically consumers throw my hands up from getting another vehicle.

I don't know that we look at it that way. I would say that the sweet spot, where the really aftermarket sweet spot would start would be in the 6-year range. So the age of car increasing has a historical kind of KPI that is focused on, on the health of the overall market. But that 6-year mark is when you start to hit the sweet spot for when you're moving into the aftermarket and looking for that kind of service.

I feel like historically, it's been into -- well into the mid-teens of you're still fixing 15-, 16-year-old cars pretty easily. .

Yes, for sure.

I was going to say we were must have to say talking about monetary policy or as my economics major hard for hear. But you talked about industrial pricing. Just briefly on that. Is that still rational? Or are any competitors there not passing through. It's lower inflation rate, but it's still been a pretty rational cost-plus environment.

Very rational. Yes. So on the Industrial side, I think the pricing rationality has been there similar to the Automotive side of the business. We're not seeing a lot of major impact, again, the inflation side of that business is not one that we've had any appreciable impact through the course of the year either.

That's great. Electrification, it's far off but out at APAC, it's super topical. And I think a lot of investors are trying to figure out what it does mean for the next 10 years. And I think -- are there any early learnings you said 6 years when you start. So it's probably a little too early, but when you talk to your suppliers and you talk to some of the manufacturers and what are you thinking or what are you learning early on from the EV side. What it could mean for the aftermarket?

Yes. We talk about this a lot, actually. And so I'll start with the second part of your question, maybe the market in general and frame it a little bit before we get into some of the more specifics. So when we think about, EV 280 million cars on the road here in the U.S., about 3% of that is EV. And so we look ahead, the car park grows, we think, somewhere around 300 million by 2030. And that EV percentage probably grows to the 6% to 8% range. I think that's a widely held consensus view. You can debate specific percentages, but let's just stick with something around those. So car park grows, ICE continues to grow, EV grows. And so when you think about 3% of the $280 million car parts right now, it is very early innings. And that's the U.S. The great thing about our business is that with our European business and our Canadian business, we actually have an ability to invest and lean into where the trends are much more advanced. And so that's a big strength for us is having both of those businesses and having the investments we're making in EV. We're a market leader there and going to benefit from investments we're making across those businesses. But when we turn back to the U.S, and the second part of your question about what are we seeing with failure rates. And I think the answer is it's really pretty early. Anyone you would talk to, and we stay in close contact with our suppliers, and we have a team at NAPA that is focused on this as well, would say it's really too early to tell. Now I would say that then they'll follow it pretty quickly with, well, let me give you some things to think about. So I always like to give you some things to think about whether it's building blocks for margin next year or some of those things. Certainly, there'll be things that wear differently and wear out differently. We know that in an EV, the weight of the car in general will bring some things to focus on in terms of tire wear, shock, some of that, the weight of the battery and how it's anchored into the car itself or wear on some of those parts as well. And so those are some things that you have to think about as we move forward. But I think in terms of science on failure rate, we're just not there. One of the things that we're doing, particularly in Europe, is kind of focused on this workshop of the future. How do we position ourselves to be ready for what will ultimately be a space where an EV needs to be serviced. And so our investment in Europe and our new workshop or the future of NexDrive is one that we're really proud of. We're rolling that out across Europe. We've just started to roll out in Canada. And the great thing about that is as we progress and we have this conversation in the future, Daniel, I'll be able to give you a little bit more science and market data because our leadership position will allow us to have that through these workshops of the future in that store, and we're very early innings in that as well.

Yes. Let's talk about Europe. Obviously, that's been a really bright spot for you guys, and it's a tough macro. People have thought for, what, 6, 9 months now things will eventually slow down, and you guys have kept growing, what's working over there is leading to share gains.

I would say the European market is one in which we're eyes wide open. We understand the landscape and the macro landscape. I would start with the fact that we come into that business with a place of great strength and a very strong competitive position, tend to be outperforming the competition there, strong business. And again, as we've talked about already with size and scale of motion, I talked about that a little bit in my opening remarks, we benefit from the same thing in Europe in terms of size and scale. Strong business, been around that market for quite some time. And when you have size and scale, you tend to have a nice competitive advantage, which we enjoy. That business had a 20% growth here in the third quarter. 7.7% comp in a tough market and in a tough environment. I think what gets underlooked when you think about our overlooked maybe is a better word when you think about the European market, is the fundamentals in Europe are very similar to U.S. -- to the U.S. So the age of car continues to increase. Miles driven continues to increase. And so the same tailwinds that are robust fundamentals for the U.S. market are also robust fundamentals for Europe, and that has driven some of our success. Our team and its execution has driven a lot of success. We made some smart acquisitions in Europe this year between Spain and Portugal, which takes us into the fifth largest car park in Europe, with Germany and a nice expansion of capability in Germany. So those things are driving the business. And certainly, we're benefiting from the NAPA rollout. The NAPA rollout in Europe has been something that we've seen go from no revenue to north of EUR 200 million in the last 3 years. And that market is receiving what is seen as a very well-respected brand associated with quality and availability. And so we're seeing a nice response to that, which I think is also fueling the European business. At the same time, all those positives, we do stay very balanced on the macro. We're very sensitive to what's happening across the landscape with energy prices, with the conflict in Russia and Ukraine. I do want to emphasize that we have no Russian or operations in Ukraine. And so that's not a specific direct exposure for us, but obviously, the knock-on effect is one that we're watching across the region.

Got it. And you've done a few deals strategic. It sounds like kind of smaller tuck-ins, not huge platform deals. I think a large French player tried to go public last year. I don't recall how this went. But what does the M&A landscape look like in Europe? Are you seeing sellers come to market given these challenges? Would you rather get through them before you do a bigger deal?

Yes. Maybe I can pull it up just a little bit and talk about M&A just more broadly. So when we think about M&A, obviously, a key part of our growth strategy going forward. This business has had a 1% to 2% topline kind of growth focus on M&A over its history. And that's across all markets. So when I think about that algorithm, I think about it very broadly across our global business. Much of that comes from an ongoing, you said it yourself, small tuck-in. We tend to refer to them as bolt-on jobbers, independent owners that are ready to get out of the market and we come in and can pretty immediately drive accretion and value creation into our business through these opportunistic M&A place. And so that's a part of our business that's continued this year. The M&A landscape for us has been -- it's been an acquisitive year. We had a large acquisition of KDG at the outset of the year. These 2 European acquisitions with Spain and Portugal deal and then also the German deal. So we remain highly acquisitive. I would say the landscape first half of the year was pretty frothy. Valuations were pretty high. And what people were looking to get was pretty sporty. That's cooled off, as you can imagine, and I think probably well-known. But the deal -- the number of deals coming across desks is pretty high. I think folks are really trying to find in a tight market and maybe a dislocated market a way to get things exited or find a strategic partner. So we're seeing a lot. The great thing for us is that we've had an acquisitive year. We've filled a lot of needs. We're being very picky. We're very focused and disciplined on M&A. We have an investment committee that reviews the things that we want to be focused on as we look at deals. And right now, we're seeing a lot, but we're not moving on a lot. And we have a lot of firepower. Our strength of balance sheet right now has put us in a good position. We've got a lot of dry powder. Leverage ratio will be around 1.7 at the end of the year of debt to EBITDA. We'd like to be in the 2% to 2.5% stated range. So we're a little below that, which gives us some runway and it allows us to be very opportunistic, which is a position we love to be in to take advantage of whatever we might see that might come along.

I think helpful color. And as you gain scale maybe in Europe or just elsewhere, what -- think about European opportunities for profit other than growth is margin. And I think how have you -- how would you grade the integration that's gone on in the deals? Is there still a lot of margin capture across that continent ex further deals to kind of drive that profitability higher?

Oh, sure. Yes, absolutely. The team has done just a beautiful job this year of taking on these 2 new acquisitions, both progressing very well. And we see a lot of runway on both. But we also see a lot of runway in our own execution. So not dependent on a market factor or another acquisition. We need to execute the integration and the synergy capture of the deals that we have made this year, and that's pretty straightforward. But we still see margin expansion, not only in Europe, I wouldn't make it about Europe, I would take it up a level and talk about the entire business. A lot having to do with execution of our own strategies. We've got a lot going on. I opened with some comments around category management, supplier management, pricing. These things are things that we're going to continue to invest in. Technology drives that ecosystem and that ecosphere of how we invest in those things. So we see expansion coming from those activities back office and modernizing our back office and continue to drive some of the transformation work that Will started and continue to pursue that, will drive SG&A leverage. Modernizing our facilities in our DCs will be a big opportunity for us as well as we continue to drive automation and those things into our DC. So all of that gives us a tremendous amount of runway to expand margin as we look forward.

And maybe that dovetails into Industrial...

Question there, talking about your investment, your operations, you talked about that you have a lot of homegrown systems. [indiscernible]

Yes. I don't want to get into specific customers. But yes, I mean, we're using a lot. We're moving cloud, moving to cloud, in many cases and trying to take advantage of the best technology on the market and...

[indiscernible] .

No, it's business process, it's efficiency, it's ways of working. I mean our suite of opportunities isn't predicated on one particular lever. We're going to lean into technology. Technology is a big part of how we're going to pivot forward. And I think you've seen our capital intensity tick up over the last couple of years. Those are needed investments in technology. But when you lean into technology, that brings an ability to be smarter about how the business process works, how many resources you need in the business, all of those things taken together create an environment of leverage and efficiency.

Talked about this trying to improve the margin opportunity going forward. I guess how dependent and what percentage of that investment that put forward we'll be reliant upon technology to digital.

Well, I don't think it's any one particular investment. I wouldn't say there's a prescribed percentage of investment on technology that then produces some other benefit as you look across, we're making investments across multiple dimensions. I'm emphasizing technology because it's a place where we've needed to invest and we're making investments. Our new CIO has come in, in the last -- he just started before me about a year ago. And he's really driving a different perspective through the business. And that then when you drive that perspective drives change and that change in the way you work, your business processes becomes even more efficient. And technology just doesn't mean platform or software, those kinds of things. It could also mean the use of technology through automation and robotics and some of those things that we see in the business that are opportunities as well. So it's a ways of working and the platforms that support it as well.

A lot to cover there.

Yes.

Good stuff. Maybe think Paul would have my head if I didn't talk about industrial a little bit during this fireside.

He's listening to you, Daniel, right now.

I'm sure. I don't know. Momentum has been, I would say, stronger this year given the macro than we had thought. And you guys have, I think, half roughly is contracted. So as you look at the industrial portfolio, where are you seeing things slow down? Is there any end market that is pulling back on CapEx or getting squished year on next year, just trying to think around like what are the soft spots you see developing on the macro standpoint?

Well, I'm going to have to disappoint you a little bit because I'm not going to say that there's any softness or weakness or anything pulling back in our Industrial business.

Paul is listening to you, too.

He might be. He might be. No, but that's 100% true. Look, we've had a -- I can't -- we're so proud of the Motion team and how they're executing and they're doing such a fantastic job. And so along with KDG integration, the base business is performing very, very well. We are not seeing pull back or weakness. The third quarter, as we look at these 14 verticals that we monitor and how we look at the end markets, all of them growing double digits. And so no pullback in any respect. The momentum continues to be strong in that business. That business sets itself apart. One, it's the market leader. So size and scale continues to be important in that business. But I'll tell you what's a big differentiator for the industrial business and the way they go to market. Industrial is not just trying to get -- Motion is not trying to get, Daniel, just a part and make sure you get your part and then move on. The Industrial business is really predicated on a value-add concept. And so our folks don't go in the front door in many cases, they go in the back door. And in many cases, they know a lot about what's happening on the shop floor. They know a lot about that piece of equipment, and they're able to bring a level of expertise to the customer that differentiates and then it creates this relationship and this stickiness that allows the business to continue to grow and develop. And I think that has set us apart this year in terms of growth. I think another reason why we're performing so well is the fact that we have the parts, we have the availability. We're hearing anecdotally from different customers that I'm here because I can't get it from the person that I had been going to for a long time, and you guys really are standing in and standing ready for businesses across the U.S. And so I think that performance has been -- or that capability has been a big part of the performance. Outside of that, KDG has brought capabilities that we didn't have. And so when we look at how the business has performed through the first 9 months, we just haven't seen anything but momentum. We continue to have backlogs that we're working. So we have a pipeline there, and we feel very optimistic about the fourth quarter and certainly turning into 2023.

So you mentioned supply chain has been an advantage for you. I think you mentioned earlier, it's more in North America, and there's less import for you guys at least. Are your competitors more reliant on the Far East, has that been the disruption for them? Or why have your supply chains [indiscernible] .

I think the depth of relationship. I mean -- like I said, Motion has been around for 75 years. Our teams are focused on relationships. We have very strong relationships with our suppliers. And in many cases, that's top to top. The Supplier CEO knows our Motion CEO very well, and they talk. And look, it's a win-win. Us getting parts to customers is a win for them, too. And so we're kind of focused on the same thing. And the depth and scale of what we have to offer, the footprint that we have to offer is attractive to many suppliers. And so we've been very successful. But businesses are about relationships and building those relationships over many decades has been a strength for motion and will continue to be.

Got it. On the pricing a little bit, so it's cost plus, typically the way the contracts are structured. Can you talk about is there a standard length you just think about how long these contracts are? To your point, if monetary policy works and inflation moderates next year or something get deflationary, do contracts get priced down? So just how does that cycle work?

Yes. The contracts, we're always in a continuous cycle of contract negotiations. That's the nature of that business. They range anywhere from 1 to 3 years in general. But that means you're always -- you've always got some bank of your contract that's going through a negotiation process. Again, the inflationary environment is such that we just don't see an appreciable impact. That low single-digit impact, I think, is something that's been pretty steady. We don't expect that to change much. So as inflation moderates or changes as we move forward, we wouldn't see a different landscape for the Motion business as we move into 2023 than what we see today. I think we're going to be right there kind of with a consistent pattern regardless of how contracts negotiate, and we work together with our suppliers. And like I said earlier, on the NAPA side of the business, it's in our best interest for everybody to be fair and balanced because we're focused on that end customer, and that's how we all are successful.

Okay. That makes a lot of sense. And probably a year or 2 at least now you guys have been talking more about growing into automation. On Motion, I think that gets completed by investors, some of that's internal automation and PCs. Some of that is going into providing automation parts before your industrial customers, I guess. On the second part, the revenue side. What are the investments you've made or the momentum you're seeing on that side? Are there further investments you need to make to whether it's supply chain or build out what you can supply to that? Or what does that look like as a big growth -- it seems exciting.

Yes, it's very exciting. It's a very powerful part of the business. And the game changer there was KDG. Yes. So the combination of the KDG automation business with our own automation business created a $0.5 billion new business that we're really excited about and our customers are very excited about it as well. So we see that as a growth engine from Motion going forward. We'll continue to invest there. We've already made investments this year. We'll continue to invest there. In terms of other opportunities kind of on the edge, newer things. You talked about a little bit of some of the things happening. I would say that the EV space and EV batteries and those kind of retrofit of facilities here in the U.S. to build EVs or new EV plants or even the EV battery plants, those are opportunities for Motion. And so much so, and Will talked about this on the third quarter call, that we've created a new go-to-market strategy there, new vertical there. And that's been a big part of our success of late and we'll be certainly going forward. Near shoring, we're hearing companies talk about near shoring. That's a lot more anecdotal than it is scientific. We've had one supplier have kind of a specific conversation about doing something here in North America, near shored. The rest are just talking. That obviously would be an opportunity that we would think about going forward. And then conveyance. So the explosion of e-commerce, the growth of the transportation companies around e-commerce and sort systems and building out those capabilities, that's created a nice growing market for Motion as well as we think about conveyance and those capabilities going forward.

And near-shoring automation, these larger, say, term like long-term factors. Is that bringing competitors into what you used to do? Are you seeing that get more competitive? It seems like such a long-term tail that it would draw investment from others as well, maybe didn't play there. So how does that evolve?

Not of late. I think we'll have to watch it, but it hasn't been a dynamic that's created any appreciable change in pattern or behavior in the near term.

You said you were in Australia last week. So it's a Australasia, it doesn't get talked about enough. You guys bought that business a couple of years -- 10 years almost. That's been growing on the Industrial side. Any update there? I like to grow at least locally, we talked about it less than we used to, but what are you seeing in that market? It's still a pretty big market for you guys.

Yes. Paul and I had a great opportunity to be down there with the team last week, and I'd be remiss if I didn't take a moment to give him a shout out. I know you asked about industrial, but we celebrated 100 years of an automotive business in Australia and New Zealand with the Repco brand, a market leader and just an amazing week to be with them to celebrate. I mean you think about 100 years of being in business. It's quite a milestone, not many that companies get to experience. And so it was just really a special moment for the two of us to be with the team. And just congratulations to them again. Within that business in Australasia is our Motion APAC business, and as you said, came through an acquisition. We see that as very similar to Motion here in North America. The market there is about $10 billion. Again, we're about a 5% player, highly fragmented. And so we have a nice opportunity and long runway just like in the U.S. It's interesting how close the dynamics are to grow and continue to be successful with that business. Again, strategy there, continued growth across multiple segments in bolt-ons. So we have continued to make some bolt-on acquisitions to grow capability and expand footprint. And the business is doing very nicely. We got to review the results of business last week while we were there as well and great performance, still have a great year. And so we see that as a nice smaller part of the business. We don't talk about it a lot, and I think thanks for the opportunity to do so, but a really nice, highly accretive part of our business.

I don't think our transportation team would let me leave you here but asking a little bit on the freight backdrop and kind of what you guys are seeing. Obviously, rates are coming down more quickly. That's been a headwind for years now for your business. How does that flow through the GPC model? Where were you feeling the most pressure? Was it on the ocean freight? Have you gone to more air freight in kind of what is getting better? And how does that flow through to your pricing?

Yes. So I would say that it is getting better, and that's been more of late. And so much like everyone else noticing the trend improving, we're noticing it as well. We saw the impact on ocean inbound. And so that's the biggest place of feeling that pinch when things are really getting a little out of control.

You have to contract it last year on freight rate...

We are contracted. And so this is not something I would say is an immediate tailwind for us because we have a big portion of it contracted. But the portion that's not contracted is going to be a bit of a tailwind, but nothing to get too excited about as we look ahead. It won't be until the middle of next year when we get the opportunity to go through the contracting process again and take advantage of what the market looks like at that time. But it certainly is improving, and we're optimistic about not only the price side of it, but the capacity side of it. The capacity side of it is more availability, which is a good thing because that allows us to make sure we've got more of those things that are important to our customers of availability and that supply coming in.

And then on the supply chain side, you guys, years ago, started kind of integrating some of the Motion and in NAPA -- these kind of consolidating the footprint where you could. Just curious what kind of cost savings -- how is that initiative gone? Have you even talked about it a little bit you continue to do that kind of initiative? And has that driven material cost savings? Is it what you thought it would be original?

I think I won't speak to the historical because it was before my time, but I would just say it continues to be an opportunity. We talked a lot about One GPC and our capabilities to drive synergies across the portfolio. And how we do that and how that looks going forward, we're still looking at those opportunities. We haven't ascribed a lot of forecast value or won't be in 2023, giving you big numbers around those synergies and benefits. They are there, and we certainly benefit from teams, resources, technology, facilities where we can. There's some good overlap in the supplier base that we try to take advantage of as well. So the One GPC synergies between the 2 portfolios are there. In terms of what has happened more historically and how it's described value, I don't know that there's been anything to get overly excited about in terms of the bottom line. But there's a lot of opportunity. And that ties back to some of my earlier question or comments on the question about how we see margin going forward. Those opportunities will be things that we're very focused on and driving returns and profitability going forward as well.

And then dovetailing off that, that's the use of capital, but I'd be remiss not to mention the dividend for 68 years?

66.

66. Memory. Can you talk about your priorities here, balance sheet of 1.7x levered. You're not doing -- it sounds like a big transformational deals, so that's not really going to be a big use of that, but -- how do you view the buyback here versus doing more M&A? And then what you're seeing on the multiple side of M&A?

Yes. Well, I'll start with the dividend. I'm not going to be the first GPC CFO to do something radically different with our capital allocation or dividend strategy. We've been very disciplined and GPC benefits from being very disciplined over a long period of time, and we're going to continue to lean into that discipline. We do have the ability with our balance sheet to adjust dials and react to dynamics when we need to. So the dividend will continue to be a big part of our strategy going forward, and we'll continue to invest there. As far as capital allocation goes beyond the dividend, we're going to stay focused on these 3 levers that we always have. The 2 big ones are M&A and CapEx. CapEx, the capital intensity of the business has increased of late, you can see that in our numbers. And I think that's a good thing because we have really strong investments to make in the business. Whether it's modernizing a DC or a facility, investing in fulfillment. We've invested in IT and technology, as we've already talked about. We're going to continue to invest in automation. All of these things are going to drive an improvement going forward. And I think that capital intensity will tick up a little bit. But that's a good thing because the returns on these investments that we're making are quite high and quite accretive. When we look then beyond the CapEx, we look back to M&A, and we talked about M&A earlier. That's always going to be a place where we're focused. While we may not have an imminent strategic deal, we continue on an annual basis to have the ongoing bolt-on of small independents that are ready to make an exit. And like I said, those are great investments for us because they're almost immediately value creation and accretive to the business. And I like the ability to have flexibility in M&A if we do see a really nice interesting strategic deal come across. And then we think about share repurchase. We're at historical highs. The stock has performed very well, and we're thankful and blessed for that this year. And we're going to continue to be very thoughtful about that, about where it makes sense in terms of share repurchase at these levels or other levels. And so I don't want to overpromise on that side of the house either. But we'll be focused there, but I like our focus on M&A and CapEx and obviously continuing to invest in the dividend.

Reflects a lot of hard work. So I'll say congrats on the stock performance. And I think we're at the end of time. So thanks so much for joining us here at Taber. Thanks, everyone, for attending. And -- yes.

Thanks, Daniel. We appreciate being here.