Genuine Parts Company (GPC) Earnings Call Transcript & Summary

Well, thank you, everybody. I'm Michael Lasser, the hardline, broadline and food retail analyst at UBS. We could not be more excited to have the team from Genuine Parts with us today. On my immediate left is Will Stengel, the company's President and Chief Executive Officer; to his left is Bert Nappier, the Chief Financial Officer; over to our left is Naveen Krishna, the company's Chief Digital and Information Officer; and it goes without saying, we have Tim Walsh, who runs the Investor Relations team, who is fantastic. This is a wonderful opportunity for us to get a state of the state, holy cow. We're living in a very dynamic environment, and we are fortunate to have two very astute and professional leaders with us to kind of help frame what's going on. Genuine Parts is a more than 100-year-old company. Will is the sixth CEO throughout the 100 years of this company. They both have incredible pedigrees. Will spent some time at the Home Depot, Bert at Federal Express. So they are doing a fabulous job of taking what has been a very stable, steady business, which continues to be a really transforming it in a way for the 21st century. Now with that being said, we were just talking in a minute ago. And I just want to start with, we are living in a very dynamic world. You gave me a little insight into your mindset of how you operate in this type of environment. If you could share that, because as we all know, no one has the answers here, but you can at least give folks a sense of how you guys are approaching this very dynamic environment.

Yes. Happy to. First and foremost, Michael, thanks for having us. And thanks for the hard work and all the support that you offer for the company. It's a pleasure to be here. I think you set the bar appropriately right. Nobody has the answers in this market, but what we talk a lot about at Genuine Parts Company is focusing on what we can control. As you said, we've had a long, long history. Over the last 5 years, we've had for better or for worse an experience with lots of shocks to the system. And one of the beautiful things about Genuine Parts Company is the culture. And in these types of moments when you have a group of professionals work well together and hustle and do the right thing by customers and all your stakeholders, that's what matters most. So I would say that we have lived through kind of a tariff and a same SKU inflation world over the last 2 or 3 years, and have been reflective on all the things that worked and didn't work. So we're as ready as we could be, as we navigate this. I think if you look at our company relative to some others, our global scale and our diversification across the business, not just by profit pool, but also by geography, we think that, that insulates us probably a little bit relative to others. For example, if you look at our exposure to China, in the aggregate, at the GPC level, roughly 7% of our purchases have exposure to Chinese tariffs and less than 5% Mexico, Canada. Where we have our outsized exposure is in our U.S. automotive business, about 20% of their purchases are from China, about 15% from Mexico and a little bit less from Canada. So in the aggregate, I think our diversification helps and our recent experience over the last couple of years, I think, has given us a very thoughtful playbook to manage the tariff world in our U.S. automotive Business.

Donald's is strong. So it's going to be hard to live up to that good answer, holy cow. But with that being said, you did mention that you've learned a lot over the last few years, what's worked and what's not worked in a tariff environment. So if you could elaborate on that. What were those lessons? And how are you applying them to you?

Yes. Look, I think you have to be incredibly granular as you think about strategies, and we call it category management. And you've heard from us over the last couple of years our investments into all things, category management, in particular pricing. So this is a local SKU level category level daily body of work where you're constantly being agile on prices up and down. And I think we've created a lot of good muscle memory around strategies to do that work and tools for that matter to allow you to do that work. The thing that I would say is also an advantage as we think about our merchandising teams is, one of the things that we do better today than we did probably 2, 3 years ago is work together as global merchants. So we have a perspective on the brakes category globally. And so that Australian breaks expert is working with the European break expert who's working with the U.S. break expert in Canada. And so I think that kind of connectedness creates a better appreciation for the global trends and what we're seeing the world. So those are just a couple of thoughts. The other thing I would tell you is we like in distribution, structured, steady, controlled inflation. I think that's healthy for the profit pool. And the beautiful thing about our industries is the rationale. They are structured. And so when you have those 2 things put together, and you're delivering great service to your customers, you can actually benefit from an environment like this. The trick is making sure that you're managing the rest of your P&L thoughtfully, starting with your gross margin strategies, making sure that you're managing costs to the ex-price levels, so that when that same SKU price inflation comes out of your P&L on the top line, which it will inevitably do just mathematically, that you're not having to do unnatural things. So a lot of reflection, and I think it's positioned the business to be successful moving forward.

So weird perverse sense. This challenging environment almost makes you become a little bit more disciplined, a little bit more focused because you don't know what tomorrow is going to bring? Is that fair?

I think that's fair. I think that's totally fair, Michael. And I think the topic du jour is tariffs, and we can sit here and all open our X feeds and see what's going on in the next 3 minutes and react to that and react to that. But I think that really the way to think about what's happening in this environment is to think about, to Will's point, the totality of your P&L. Tariffs could impact the ability to increase prices on the revenue line. It could also dent the revenue line, if it has an impact on demand levels. And so there's two dimensions there to think through. Obviously, cost of goods sold. We're going to be dealing with individual conversations with individual suppliers over the next 90, 180 days, as the reality of this environment comes to light. Those conversations will be individual negotiations, and they'll go on for some period of time. And then we also have to think about what tariffs might do the rest of the P&L. So does it bring inflation back? And to Will's point, we need to be really disciplined, which is why we've taken some of the cost actions we've taken being really disciplined about thinking where we'll get impacted. Will wages have some impact from inflation, will rent will freight? Those are our big three expenses. And then beyond that, we have to really think through some of the things we're already seeing in the currency markets and some of the FX headwinds we have coming out of the fourth quarter with the threat of tariffs, and now currency movement with the reality of tariffs has been a headwind for us so far, which we talked about in our guidance a few weeks ago. So I think it's really, if you think about it through a financial prism, beyond the operational impacts, it's staying vigilant around all the elements so that we can be nimble and react to whatever comes.

And speaking of this, it sounds like you're taking elements of your playbook from last time and applying it this time, especially those elements that work really well. How are suppliers reacting differently this time around because the application of tariffs is distinct this time around from last time. Are you hearing anything different from them?

We're really not. This is the time of the year where you're kind of in the ordinary course talking to vendors about the year forward and price increases. And so I would say those discussions are largely normal. Obviously, there are increased levels of conversations around, well specifically in China these tariffs are having an impact and to Bert's point that kind of starts a 100 day discussion back and forth. But I think we're smarter to have a more informed discussion with our vendor partners. And they're constructive, but I wouldn't say there's anything atypical that we're seeing now relative to the last time we had the discussion.

And it is important to note that given the nature of the products that you sell, that they do have longer lead times, they turn a little bit more slowly than other areas within the economy that does provide an opportunity to have a bit more of a longer-term view?

It will take time even if you were to say yes to a price increase. It will take time for that to flow through, to Bert's point, the totality of the income statement. And so I think your point is right.

And GBC is in a very interesting position because of its global nature. It's not a purely domestic business. There's a very sizable presence in Europe, a very sizable presence in the ASEAN region, mostly in Australia. How does that broad purview inform how you're operating? Is there a different playbook that you're operating in the United States from what's happening in Europe from what's happening in Australia?

No, I think it's actually quite the opposite, which is that is the benefit of this closeness of the team that we've built where the playbook is the same no matter what geography you're talking about, point number one. And so whether it's pricing analytics that we did in the U.S. 2 years ago that we then recently did in Europe over the last 6 months and translating that, that's a good example of kind of how we're leveraging the playbook for a very similar. The timing might be different in the geographies. We saw that this year is -- probably 2 years ago, same SKU inflation started to come out. It came out maybe a year later in Europe, but the fundamental dynamics of our markets, which is why the global diversification actually works. Everyone is running the same initiatives. Everyone's got the same demand function as it relates to do-it-for-me customer. And so we can really benefit from our global expertise when we work together.

I'm sure you're getting a lot of questions from your operators around the world of what's happening in the United States. With that being said, are you seeing different customer behaviors in global markets? Or while there might be different economic cycles that are happening, most of the operators are saying, we're seeing behaviors that are similar to a lot...

I think the thematics are all the same, which is cautious consumer, which obviously is not our customer, given we're a B2B business, but that impacts our customers' activity level...

In Europe.

Globally. I mean these are global themes, and I would say they're consistent around the world. So you've got a cautious consumer, you've got people that are watching interest rates and kind of how that's informing capital decisions and purchasing behavior. In Europe, in particular, you've got kind of real wage pressure. You've got some geopolitical activity. So everyone's fearing around the world, and I think you've seen that actually in our financials over the last year or so, which is all of our global business units have felt the same thematics and the same business trends for really the first time in 100 years. And I think that's just a reflection of the commonality of all the things that everybody is dealing with around the world driven by interest rates, politics, et cetera.

Got it. And is there any market leading or lagging? Europe seemed to have maybe started to experience some of the headwinds at a different time than the U.S.?

I would say that Europe lagged. So what we saw in the U.S. as the record levels of price benefit as we exited 2022 started to play through 2023 in the U.S. I think that lagged Europe of about 6 months, and we started to feel that at the beginning of 2024 there. Look, we exited, and we were really clear about this when we released earnings a couple of weeks ago that the way we exited 2024 and the way we're starting 2025, our 2 most pronounced, I think, pockets of softness are Europe and industrial. And so Europe market conditions got pretty tough the second half of the year for a lot of the reasons that we talked about, interest rates, real wage compression for the ability to spend. The political environment hasn't been very stable, particularly when you look at some of the bigger countries like the U.K., like France, like Germany, some of that's improving and could be backdrop for a better foundation as we look ahead. And then the industrial, I mean, we closed out the year with PMI negative for 25 of 27 months. And now, look, I mean, we've got some green shoots as we start 2025 with the January and February PMI readings turning back above 50. And I think that builds on Will's point about cautious optimism. But when we think about the markets and how they look, I think I would point to Europe and industrial first, and then the U.S. obviously has got its challenges. But quite frankly each market that we operate in has its own uniqueness, right, and is feeling its own pressure as is the Australian and New Zealand market, particularly on the manufacturing side in New Zealand.

I was just going to say, I mean, as I started with focusing on what we can control to take care of customers and make our business better is our guiding principles. And as we've talked about internally, there's only so much our customers can defer. And so it's not a matter of if, it's a matter of when. And if we use the moment to be super-disciplined and super-thoughtful about doing the right body at work at pace with urgency as a team, we're going to be positioned well when our markets become more constructive.

And Will, on the North American auto business, particularly the U.S. auto business, last year was a year that was characterized in part by deferred maintenance. How long can consumers defer maintenance? How are you thinking about that cycle, if your air conditioner broke at the end of the summer, maybe you would defer to this year. But at some point, you got to fix that AC?

You do. I think interest rates really matter. I mean that was the big kind of wasn't a profound reflection, but I think we really felt it and saw it in the business. And so as we move down the interest rate curve there, I think that's going to be a bit of an unlock assuming we do. So to your point, though, I don't know how long they can wait, but the average age of the car is as extended as it's ever been. And I think the fundamentals for the U.S. and North America out of all of our markets that are better, and as I said, it's a matter of when.

Michael, I will add just there. I think the consumer, so the customer of our customer, that's creating the demand for a mechanic in the automotive business to make a repair. The thing to think is getting clarity and getting certainty. These are the tariffs, and this is what's going to happen. But having that certainty and me as an individual knowing that all the moving pieces have settled in, and this is my new normal, might actually be the unlock to help something right now because I think it held off by simply not knowing. And so I'm just not going to spend because perhaps there's an issue with my employer and my job because of these tariffs, and so I'm just going to sit and wait to see all that. And I know what the environment is going to be, then I can be more confident about making a spend and maybe it is time to fix the AC or change the tires or whatever the case may be.

Hopefully, we'll get that clarity soon.

I hope so.

But in the meantime, to both of your points, you are controlling what you can seek to control. The NAPA business in North America has been on this journey over the last few years to make some investments in areas like parts availability, supply chain, people. Can you provide a sense of where the NAPA business is on this journey. And then I want to talk a little bit about some of the capital deployment policies on how you're trying to reframe the independent operating structure?

We're really pleased with the progress with the NAPA team in the U.S. We run our Canadian business and our U.S. business differently. They have their own teams, obviously, closely connected. So we've been spending a lot of time with the U.S. team, and we've made really, really good progress. I mean it's not a complicated business. You got to have the parts, you've got to have the part [Technical Difficulty] and progress. We've talked about it on our call in terms of some of the internal metrics, whether it's service levels, inventory fill rates. We've added talent to the team. So we're on the right path. We know what we need to do make some clear progress. Part of our journey has been this appreciation that maybe having more company-owned stores would be more helpful as we think about how we compete in the local markets. And so as a reminder, we have about 6,000 stores in the United States. Remember, when we use the term stores, we're a B2B business. So think about these as little small distribution nodes that 80% of the activity that's happening in that store is actually moving product from our shelves to the repair tech. So we're not a retailer. We don't have people coming in and largely having kind of a retail experience with a store experience like that. So part of the vision has been to mix up of the 6,000 today. We've got 4,000 independent owners, 2,000 company-owned stores, and that's of totally 10 percentage for the last 3 or 4 years. We think that just allows us the opportunity to leverage a very powerful independent owner model in our rural markets as well as be more aggressive and in control in some of our other markets where we think it's helpful to be able to really inform inventory pricing at a faster pace.

And it's been interesting because both of you come into your roles in the last couple of years, you guys have, as I mentioned before, great pedigrees, have been a very successful organizations you've come in, you've tried to transform GPC in some ways, this longstanding company with a great proud culture and legacy. What have you seen changing in the industry over the last 5 years that has informed the strategy that requires a little bit more company ownership, a little bit more influence over the directives, some of the supply chain investments that GPC has been making. It seems like those are some of the hallmarks of the tenure that you guys have been establishing. What has been changing about the industry that's been driving those decisions.

Well, I would obviously start with, we are kind of standing on the shoulder of some very impressive history, great leaders, as you said. The consistent leadership at the top of Genuine Parts Company over the years, it is a unique advantage.

And it is such good answers, they broke my mind. It's unbelievable. We're just getting started, by the way.

So look, I think while we bring a fresh perspective to the business, there's a lot to love about the long success of Genuine Parts Company in all of our businesses. I would argue if a business is not continuously evolving, it's probably not doing the right body of work. And so it's less about what we're seeing in the industries themselves and more, I think, a self-reflection on where do we have opportunities as a business to be better. I'm a firm believer in the role of technology in a company and the way in which that helps us serve our customers better and be more productive. And I think there's a reason that we brought Naveen to New York with us. Naveen is a incredible talent, brings a ton of relevant experience based on his background, and it's a very different approach to technology at Genuine Parts Company, but we think it's the right thing to do. So it's less about what we're seeing structurally in the market and more about how we want to run the business to capture opportunities and what we think kind of a modern next 100 years looks like for Genuine Parts Company.

And the process of bringing in some of the independently operated stores, that's very visible to us. We can see through some of your acquisitions. What might be less visible is the supply chain transformation, the IT transformation. If you had to use the baseball analogy -- not to become a brace, but if you had to use the baseball analogy, where is the NAPA North American business?

We're in inning 3 or 4, and it depends on the topic. So we talked about category management. We've been working on that. The body of the work there is medium- to near-term kind of impact, and so we've made great progress. So that's an inning 7, 8. Supply chain in this distribution business, it's a never-ending journey. So I don't think you kind of ever get past 4 or 5 because it's always evolving. Technology, I put in the same category. We've made more progress in our technology execution in the last couple of years, and we probably have over the last 4 or 5. So thanks to Naveen and the team that he's built at Genuine Parts Company. We've got 300 engineers in Poland that support all of our global technology initiatives, and they've really helped us to kind of build it once and use it many places at pace. And so we're making great progress, but part of our job is to run the marathon and make the company better over the long term.

And speaking of the long term, what are the talking points about the investment case and maybe Bert, you can chime in here is that, there has been an increase in the SG&A dollars over the last couple of quarters. A lot of that has been due to the acquisitions and the changing composition of the P&L, given the contribution there. How should the market shareholders look at how this is going to transform the P&L over the long term? Does it mean that the expense base is a little higher? You do have a higher gross margin rate that offsets that. And then as the sales improve, there's good leverage, or are there other factors that should be considered?

Yes. No, I think the way to think about that is just as you outlined, there is gross margin benefit from the acquisition that's offsetting the SG&A. So when you look at the SG&A in isolation, of course, you're going to see headwind because we added the cost of the acquired business. The good news is that the net of that last year for NAPA was a positive to the operating income line with the gross margin that we pick up in those transactions. Now having said that, we're not happy with just being a net benefit. We want to continue to create value, and that's where we see the opportunity in these acquisitions. And so we'll be looking to streamline that SG&A over time, just like you would in any acquisition. And the value creation from the acquisition when we see it in terms of synergy comes through many of the things that you would expect us to find that there's a level of back office, not only functionality, but back office support personnel that when we make an acquisition, we don't need that anymore. We have our own capabilities. We have our own leaders, and so we can get some lift on the payroll side and just the cost of the back office. Many of these acquisitions of independent owners, they have their own redundant supply chains, maybe a small warehouse for overstock or some of those things that we also don't need and so we can take those out. With the larger acquisitions, it takes a little time. And we're also putting in our own technology. And so Naveen has a lot of work to do to put in the good, strong GPC technology into these locations. And that obviously takes time to. As you look through like an MPEC acquisition in 180 stores, we've got to chop that wood pretty methodically to make sure that we protect the customer experience as well. So we're excited about the opportunity. Last year, we had a lot of deleverage in SG&A. I think, well over 100 basis points of full year deleverage, this year, we're calling for 20 to 30. And the 20 to 30 is actually a net of some pretty big headwinds that we were dealing within the business. And so absent some of the actions we've taken with our restructuring in 2024 with the cost actions we're taking in 2025 that we just announced, we would have had a much higher level of deleverage of 20 to 30 basis points than you're actually going to see in our P&L. We had to restore some incentive compensation versus what we paid in 2024 with Target being modeled for 2025. And so I think you're seeing us get back to that really good discipline that you've seen in the business. Now, are we happy with 20 to 30 basis points of deleverage? No, we're going to keep driving the business to get back to that level of leverage. And get past some of the things that we're dealing with that we've already talked about. Some of the headwinds I've got this year will be continued headwind with wages, continued headwind with some costs in rent and freight. That we hope will cool off as monetary policy continues to work and brings inflation down. But that's a long answer to, we really think this operating leverage concept is one in which we're getting our way back to, and it's a clear focus for the whole management team in terms of getting back to that kind of we want to drive a bit of leverage against that top line and get the earnings back.

There's a longstanding GPC rule that we call the 1% rule that I've inherited from my predecessors. And that's gross margin profit dollars growing 1% faster than sales, and cost growing 1% slower than gross profit dollars. And it's a good formula and it's basically operating leverage. And so as we think about our success metrics and how we rally around internally, it's growth in excess of the market, getting operating leverage, managing working capital and delivering ROIC. And those are the value drivers for our distribution businesses. And when you have all those things work, it's a good algorithm.

Well, two things. One, it should not be lost in the market, but these acquisitions you're doing are very attractive, come at attractive multiples. There's opportunity for synergies because these independent operators are not buying 100% NAPA products. So there's some sales benefit as well as redundant costs that Bert mentioned. You have done a couple of larger ones, so they may be more modest, but how do you think about the pace of continuing to do these?

Yes, I think the pace will slow down. You saw that in the guide we gave in some of the M&A forecast for 2025. The reality of what we did was that when we made this decision to change the mix and really control some of these larger markets and control our destiny there, the opportunity set came to us pretty quickly with these 2 large independents that fit the profile of what we were looking for. These were win now markets. The Hansberry MPEC business was the Midwest of the United States, 180 stores, well run, the Walker business, North Carolina, great market. But those are our two largest by a wide margin. So 181 stores for MPEC, 80-some-odd stores for the Walker business. And then the next level of store opportunity group to buy will be much, much smaller. So the pace from here naturally pulls back because the ability to buy anything and scale is going to come in the more 20, 15 onesie-twosie kind of category. When you think about the 4,000 independently owned stores that remain in our network, there's 2,000 owners. And so that just gives you some quick math on it's 1 or 2 per owner. Now that's not the reality of it. There are some nice sized groups in there. But there are also some of our largest right now that are strongholds in areas in which we'll probably never own. 50, 60 store groups in Idaho and Missouri that lean into this rural market in which they are super well run, and they have no intention to want to do something different. They're running great stores. They love their business, and we love them. And that's why the model will continue to exist in a hybrid state because it can be very successful. One of my favorite new stats is that 17% of the ZIP Codes in the United States, the only flag that flies is a NAPA flag in the post office.

When you say maybe NAPA is the only one, it's -- we'll see what happens in the year.

I can say it's a great model for the rural market and one in which is the stronghold for NAPA.

Yes, that's awesome. I want to put some of these pieces together. So NAPA is in this third inning of a transformation. There are changes in the competitive landscape. Some players are closing stores. Others are going to probably not be able to navigate through the volatility as well. So is it right for the market to think that this transformation is going to pick up speed at the same time that there's this disruption in the market and that these pieces will come together to -- in the EVO NAPA to outperform the market like the goal? And is there a reasonable time frame that the outsiders should hold the company to?

Look, I think absolutely. I mean that's the vision. That's what we're working on. And we like the fundamentals of the market. We like how we're positioned in the market with our strengths and advantages. We like the body of work that we're doing. We're cautious about the market backdrop in terms of calling the ball on the timing of recovery, in particular as it relates to the independent owner and their psyche and their behavior. But absolutely, we feel really good about how NAPA is positioned, and there's no reason that this business shouldn't and can and won't win. And that's how we're running the business each and every day.

Are you seeing opportunities given the changes in the competitive landscape, the store closures out there?

We are. It's a big market. And so not one player kind of controls all of the dynamics of the market. Obviously, when there's disruption, it creates opportunities. And we're going to be super thoughtful about how we seize those opportunities. We've got a great book of business that's our major accounts business that we feel like we're being super thoughtful on in terms of dealing with national customers to the extent that you have players in the market that don't have that reach. That's one less person to have a discussion with our customers. Any time there's disruption in the market, if you're an employer of choice, that creates opportunities. And then obviously, our uniqueness with our independent owners. There are other independently managed stores out there. And if they've got an affinity to the NAPA brand and want to continue to be in the auto parts industry like we're a great home for that. So there's lots of opportunities. And as I said, we're going to stay focused on what we can control to seize the right ones.

Let's pivot to the industrial business for a little fair bit. Part of the story is like we operate in these very stable verticals, but there's also a cyclical recovery. Bert mentioned that Europe and Industrial were the areas that there was the most uncertainty. I think there's a misunderstanding of how GPC's industrial businesses position. It doesn't just sell all bearings to replace parts. It's very much a consultative partnership with big industrial diversified end markets. If you could give a sense for what the Motion business actually looks like and then we'll do...

Yes, it's a wonderful industry, and it's a wonderful business. It's about an $8 billion top line business, very strong operating margins. The customer in our industrial business is the maintenance/engineer/procurement expert that works on or around the factory floor. And it's a break-fix business model where our role is to support that customer with solutions, not just part solutions, to keep the factory running. And so it has all the same principles of our genuine parts company model, which is you've got to compete on service, you've got to have the right parts, you've got to have the expertise to help that factory know what to do. And so it's highly technical and highly consultative in terms of the selling experience. It's a diversified business. So it's got 14 to 15 different end market exposures. It's diversified in the sense that our product portfolio is broad, ranging from a part, to a solution, to repair services to automation, to conveyance. So it's not just moving a widget from point A to point B. In fact, it's quite the opposite. And as you said, the fundamental cycle that we're in has never been lower for longer. And if you study the math, empirically when you get on the other side of the expansion line with PMI as an example, it starts a 2- to 3-year run. You drop that on top of the megatrends that we are seeing and feeling and believe in, which is the near-shoring, reshoring here in North America, and so as more factories are built, more business comes back to the States, that's a massive opportunity for Motion. Our opportunity in the business is to sell super effectively, so cover all of our customers, both national accounts, down to the small local guy, and cover those customers the way that they want to be covered. So in many instances, you don't need a salesperson to show up for a small customer, and so aligning our selling resources to cover the model -- cover the market effectively. Gross margin strategies around category management are real and effective. We've had great success there. And it's a very lean, well-managed cost structure. And as a result, when you get that top line, you get amazing operating leverage and amazing cash flow characteristics with low capital needs. So there's a lot to like and the business is very well positioned with a bright future.

And should we as outsiders think 80% of the business is MRO, 20% is levered to expansions of production facilities, capital investment...

That's the right way to think about it. So the beauty of the business actually is you have, in all cycles, a mix of kind of demand where you've got break-fix in the 80% of MRO. Now these are not consumable purchases. They're not planned purchases. These are break-fix purchases. So it's a little bit different to some of the other players in the market where you know you're going to need 6 widgets in 32 days. This is -- it's an MRO purchase, but it's in the moment, solve a problem. And then the -- and that happens as things happen regardless of cycle. Then you have 20% of the business that's a little bit more forward-looking, bigger ticket items, capital planning for creating a new line in a factory, reimagining kind of the flow of goods inside of a factory. And so we come in and consult on conveyance as an example. So that part of the business is a little bit more exposed to this idea of, "Gee, this is a big decision. I want to feel good about what's happening in the market. I want to feel good about interest rates. I want to feel good about reshoring," and so we felt some stickiness in that part of the business over the last couple of years.

And are you hearing from your customers that given all the volatility out there, reshoring could worsen. It's just having a little bit more clarity on the environment is something that was necessary before making that ultimate decision.

I think that's 100% right. I mean, uncertainty is not a friend of business nor for investors. So yes, absolutely. I think if people knew that rates were coming down in the second half of the year, tariffs are fine, they're in place, but they're stable and not changing, that can inform investment decisions. I will say though that as is usually the case, but we felt it this year that the turn of the calendar, as people think about some of these projects, the election noise here in the U.S. was kind of put aside that was settled. And so we were having very constructive discussions and continue to have constructive discussions with our customers about the year ahead. But like all of us in this room, it's just an uncertain world. And so the best thing you can do is stay close to these customers and offer them solutions and be a creative thought partner to them as they're solving their problems, and that's what we are doing.

And Michael, to your point about near-shoring, that is one in which, as the shovels get in the ground and they continue to make these decisions, and we see more activity. The great thing about the Motion business is they're already doing business with all of these customers that are looking to expand. That's the stickiness of the Motion relationship with these large customers. And so as they grow, we grow. Because we've been such a great partner, we bring such a great solution and value add to them, they want us to grow with them because we've been able to deliver with what they have in their existing footprint. So now if it's time to expand and grow and continue to look at near-shoring or reshoring, we're really well positioned to take advantage of that cycle.

So it sounds like the pieces are in place for a really handsome recovery whenever that happens. There's never been this length of a decline in industrial production, the reshoring and tariff conversation probably motivate some of your customers to say makes more sense to have these production facilities domestically rather than abroad. The uncertainty may prolong for the period from when that inflection hits, but you are having a bit more confidence that when that inflection hits, it's going to be nice.

I think that's a very fair summary.

We've got people to do that here well. But I appreciate that.

No, I think it's a very fair summary. And look, I mean, Will said this on our earnings release, and we said it a little bit here in the last few weeks. It's a wait-and-see, but with some cautious optimism. And you look at January, you have a PMI reading that's above 50 for the first time in some time, February as well. And the reality, and you guys can do this work, and I know you have, the correlation of PMI and IP to industrial businesses is pretty tight. It does come with a lag. And so there could be a 90- to 120-day lag in which we start to see this inflection and then actually translate through to a more robust top line for Motion. And if you put all that math together, that's why we guided to a better second half for the industrial business because that timing of January and February data points hold and stay consistent, then that timing would put us right in the middle of the summer when you build in the lag for which we would see a rebound into something more robust than what we're seeing today.

Where I want to conclude our conversation is long-term in nature. Tim has taken all the credit for that 2023 analyst meeting that was exceptionally executed, but we'll put that aside for a second. At that time, you did provide some longer-term targets, it feels like forever ago. How should the market think about the long term and financial objectives? One of the messages at that time was, we want to give the market a little bit more clarity on how to model and hold Genuine Parts Company accountable. So what should the market think about from a present date perspective?

Look, I'll...

Bert, you do that one.

I'll echo what Will said earlier. From a financial principle perspective, it's growing in excess of our market. It's getting that operating leverage, generating good cash flow and strong cash flows and delivering on our ROIC. Now to make that more specific, we did set out 2025 target. And that was the first time that GPC has had that ambition to set a long-term target. You guys know with our guides for 2025, we're not going to hit the EPS component of that outlook that we set back a few years ago. And look, I mean, with any long-term target, you're going to find your way to the reality of the timing through different paths and different journeys, and that's certainly been the case for us. A lot of how we built the outlook that we gave was predicated on very strong market conditions, low single-digit market growth for industrial, low single-digit market growth for automotive globally. And the reality has been those are flat. And in a flat market growth, that was a material headwind to the outlook that we gave. Now there's been cost inflation and other things. We've made our own structural changes like terminating our pension plan and transitioning it over to a third party insurance carrier, which changed the earnings profile as well. So look, I think the good thing is, is we have hit some of the things we set out. We set out a 12% operating margin for Motion, and we've already exceeded that. And so some of the good ambition pushing is there. And the reality of the situation is that this entire team believes that there's even more to go get. We still believe in the double-digit EBITDA margin for GPC and that will continue to be our focus. Now when we come back to everyone and tell you more specifically, I think we need to get through this cycle and get past some of this noise and then come back and reset. Right now we're staying focused on what we set out for 2025 guidance, but don't think that any of us are satisfied with where we are, and that we still believe and some of the principles we did set out, which were to be a GPC business that's at a double-digit EBITDA margin.

Did you guys have as much fun as I did? This is great.

This is the best.

The best. Well, please join me in thanking both Will, Bert and the team for a wonderful discussion.

Thanks.

Thanks.