On Tuesday, Genuine Parts (NYSE:GPC) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Genuine Parts Company reported second quarter sales of $6.5 billion, a 6% increase year-over-year, with adjusted earnings per share of $2.15.

The company is on track for the planned separation of its automotive and industrial businesses in the first quarter of 2027, with significant progress made on related strategic and operational initiatives.

Industrial segment sales grew by 7% with a 10% increase in EBITDA, while the North America Automotive segment saw a 4% sales increase and a 6% rise in EBITDA.

The company's international automotive business experienced an 8% sales increase, with the UK and Germany showing strong performance.

Management reaffirmed their 2026 guidance with adjusted EPS expected to range between $7.50 and $8.00, but noted potential headwinds from the ongoing Iran conflict affecting costs and consumer sentiment.

Strategic pricing and sourcing initiatives contributed to a 20 basis point expansion in gross margin, despite inflationary pressures.

The company is preparing for Investor Days in December to provide detailed insights into the strategies of the separated entities.

Management emphasized that there are no current discussions regarding a sale of the global automotive business to a competitor.

Full Transcript

OPERATOR

Good morning, ladies and gentlemen, and welcome to the Genuine Parts Co second quarter 2026 earnings conference call. At this time, all lines are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Tuesday, July 21, 2026. I would now like to turn the conference over to Tim Walsh.

Please go ahead.

Tim Walsh, Investor Relations

Thank you and good morning everyone. Welcome to Genuine Parts Co's second quarter 2026 earnings call. Joining us on the call today are Will Stengel, Chairman and Chief Executive Officer, and Bert Nappier, Executive Vice President and Chief Financial Officer. In addition to this morning's press release, a supplemental slide presentation can be found on the investors page of the Genuine Parts Co website. Today's call is being webcast and a replay will also be made available on the company's website.

After our prepared remarks, the call will be open for questions, the responses to which will reflect management's views as of today, July 21, 2026. If we're unable to get to your questions, please contact our Investor Relations Department. Please be advised this call may include certain non-GAAP financial measures which may be referred to during today's discussion of our results as reported under Generally Accepted Accounting Principles. A reconciliation of these measures is provided in the earnings press release.

Today's call may also include forward-looking statements regarding the company and its businesses as defined in the Private Securities Litigation Reform Act of 1995. The company's actual results could differ materially from any forward-looking statements due to several important factors described in the company's latest SEC filings, including this morning's press release. The company assumes no obligation to update any forward-looking statements made during this call.

With that, I'll turn it over to Will.

Will Stengel, Chairman & CEO

Thank you, Tim. Good morning, everyone, and thank you for joining our second quarter 2026 earnings call. I want to begin by thanking our teammates around the world for their hard work, resilience, and commitment to serving our customers. Their dedication continues to be a defining strength of Genuine Parts Co. This morning, I'll review our second quarter results by segment, provide perspective on the current operating environment, and share an update on the planned separation of our automotive and industrial businesses.

We remain on track for a separation in the first quarter of 2027. We delivered a strong second quarter reflecting focused teamwork and disciplined execution across the businesses, despite a dynamic global macro environment. I'm proud of the work the team is doing as we simultaneously navigate the developments in the Middle East, manage the business in a persistent inflationary environment, and execute a meaningful body of strategic work at the company.

Despite the environment, we executed well and delivered performance in the second quarter that exceeded our internal plans and underscores the agility and determination of our teams. Turning to our financial results, a few highlights for the quarter include total Genuine Parts Co sales of 6.5 billion, an increase of approximately 400 million, or up approximately 6% compared to the second quarter of 2025; adjusted gross margin expansion of 20 basis points in line with our expectations and driven by strategic pricing and sourcing initiatives; segment EBITDA growth in all three business segments, with Industrial EBITDA increasing approximately 10% versus prior year; and adjusted earnings per share of $2.15, up from $2.10 in the same period last year. Now turning to our results by business segment, total sales for Industrial were 2.4 billion, an increase of approximately $160 million or up 7% versus the same period in the prior year, with comparable sales up 6% during the quarter. The benefit from price inflation was approximately 2.5%.

From a cadence perspective, all three months of the quarter were similar on an average daily sales basis, growing mid- to high-single digits versus last year. Motion delivered an excellent quarter with balanced growth across large corporate accounts, small- to medium-sized local customers, as well as its value-add solution offerings. We're optimistic about the industrial market conditions and we're encouraged by six consecutive PMI readings over 50 and the strong performance to start the year.

Regardless of the environment, Motion has the scale, unique value proposition, and operating discipline to differentiate itself from the competition and deliver profitable growth. Looking at the performance across our end markets, we saw growth in 11 of our 14 end markets we track, which is up from 10 in the first quarter and 5 in the same period of the prior year. During the quarter we saw notable growth in two key end markets: equipment and machinery, and food products.

We also saw strength with iron and steel, automotive, mining, fabricated metals, DC and logistics, oil and gas, and equipment rental and leasing. This growth was slightly offset by softer demand in pulp and paper, lumber and wood, and rubber and plastics. Our core MRO business, which accounts for approximately 80% of Motion sales, was up approximately 7% during the quarter and sequentially improved from the first quarter. Looking at the remaining 20% of Motion sales, which originates from more capital-intensive projects, we saw strong sequential improvement from the first quarter with sales up approximately 9%.

This project-based demand was the strongest performance since the first quarter of 2023. Industrial segment EBITDA in the second quarter was 316 million, up approximately 10% and 13.1% of sales, which represents a 30 basis point increase from the same period last year. To close out on Motion, we're encouraged by the work we're doing with customers and the overall sentiment. Deferred maintenance seems to be normalizing, larger capital investment projects are improving, and our strategic initiatives are delivering the benefits we expected.

We're leaning into the strong core performance with disciplined and focused investments to position Motion for continued growth, all while delivering strong operating leverage and returns on invested capital. Moving now to our automotive segments. In North America Automotive, total sales in the second quarter increased approximately 4% while comparable sales increased 2.6%. The team continues to advance our strategic priorities while navigating a cautious consumer backdrop and persistent inflation, both of which are impacted by the Iran conflict.

During the quarter, North America Automotive segment EBITDA was 208 million, up 6% and 8.2% of sales. This represents a 20 basis point increase from the same period last year and a 160 basis point increase from the first quarter. The increase year over year reflects ordinary-course seasonality, ongoing benefits from our strategic initiatives and restructuring actions, partially offset from pressure driven by cost inflation in health care, rent, and freight.

Within North America, total sales in the U.S. were up approximately 3% for the quarter with comparable sales up approximately 3% and price contribution of approximately 2.5%. From a cadence perspective, average daily sales were up low- to mid-single digits in April and May and roughly flat in June, which we believe is driven by a softer market resulting from higher fuel prices. We've seen an improvement in July month to date, with average daily sales growth tracking in line with our expectations.

In the second quarter, comparable sales at our company-owned stores increased approximately 4%, with commercial up approximately 5.5%. Independent same-store purchases sequentially improved from the first quarter, increasing approximately 1.5% versus last year. Our team continues to execute well on our company-owned store initiatives, and we're working closely with our independent owners. Looking at the comparable sales performance of NAPA to the end customer, which includes our company-owned sales as well as the sales out to the end customer from our independent stores, the NAPA system delivered sales growth of 3% in the second quarter.

By customer type, comparable sales to our commercial customers for the quarter were up approximately 4%, while comparable sales to our retail customers decreased approximately 3%. Within Commercial, we saw solid growth in all four customer segments, with particular strength in other wholesale and major account customers. Across our product categories during the quarter, we saw continued relative strength in our non-discretionary repair and maintenance and service categories, which were both up low- to mid-single digits.

As a reminder, combined these categories account for approximately 85% of our U.S. business. Discretionary categories sequentially improved in the second quarter and were up low single digits. In Canada, our team is executing well despite ongoing softer market conditions. We saw sequential improvement from the first quarter, with total sales increasing 9% in local currency versus the same period last year and comparable sales up 1%. The Benson acquisition continues to provide a nice tailwind for our business, and we remain ahead of our financial and operational target plans.

Turning to our international automotive business, total sales during the quarter increased approximately 8% with comparable sales up approximately 1%. International Automotive segment EBITDA for the quarter was 150 million, up 6% and 9.4% of sales, which represents a 20 basis point decrease from the same period last year. The decrease in EBITDA margin was predominantly driven by inflationary cost pressures from higher salaries and wages, rent, and freight, which was partially offset by our restructuring initiatives and cost actions.

By geography, in Europe, total sales for the quarter increased approximately 4% in local currency with comparable sales positive, up approximately 1%. Overall results sequentially improved from the first quarter, and we saw notable improvement in the UK and Germany. We believe our teams are performing better than the market, driven by our strength with key account customers and the NAPA offering. Our accretive bolt-on acquisitions continue to add local service density and growth in priority geographies.

The investments we've made in supply chain and technology across the region are also delivering the intended results, and when combined with our productivity initiatives, the business is well positioned as the market recovers. Lastly, our team in Asia Pacific had a solid quarter despite challenging market conditions, in part due to the conflict in Iran. In addition to the conflict, Australia has already experienced three interest rate increases this year, with a 30-year record-low consumer sentiment.

Despite these conditions, our team is focused, motivated, and executing at a high level to win profitable market share and add capabilities. For example, the team continues to invest in its supply chain and seamlessly executed a modern warehouse management system implementation on time, on budget, in a key distribution center. Total sales in the second quarter increased approximately 2% in local currency with comparable sales up 1%. Both trade and retail posted positive results during the quarter, with retail performance continuing to stand out.

In fact, during the quarter our Repco business was named Australia's 2026 Major Retailer of the Year, a huge achievement for an auto parts retailer and a further testament to Repco being an employer of choice and an innovative market leader. Lastly, I want to provide an update on our announced plan to separate our global automotive and global industrial businesses into two independent public companies. As mentioned, we remain on track for the separation planned for the first quarter of 2027.

We continue to make meaningful progress against all of our key milestones. We have a rigorous operating cadence with a cross-functional project management office that is coordinated across our various tasks. We have created an enterprise communication portal to update the global organization with important developments. We created disciplined processes to understand and track all in-flight activities against standalone and dis-synergy estimates. I'm really proud of the collaborative global teamwork and momentum.

The work for the standalone audit has now been completed, which is an important step in preparing each company to operate independently and provides the foundation for other important near-term work. We also expect to confidentially file the Form 10 with the SEC later this summer. This is another key milestone in the process and will allow us to advance the required regulatory work. In addition, Bert will share the estimated allocation of Genuine Parts Co's current corporate costs and provide commentary in a moment.

At the board level, the work is progressing well, including the ongoing evaluation of leadership and governance for each company. We're taking a thoughtful and deliberate approach to ensure both organizations are positioned with relevant expertise and board governance to execute the business strategies and create long-term value. Finally, we anticipate hosting Investor Days for both companies in early December in New York. We look forward to using these events to provide investors with a more comprehensive view of each company's strategy, financial profile, capital structure, capital allocation priorities, and long-term value-creation opportunities.

Additional details and logistics will be announced later this fall. Before I close, I'd like to take a moment to emphasize our focus on the work to create two public companies. We are aware of recent market speculation about a potential transaction between the global automotive business and a competitor. I want to take this opportunity to officially confirm that we are not currently in discussions with any competitor. We remain committed to maximizing shareholder value and will always evaluate all potential options in that pursuit.

We're making progress towards a separation in the first quarter of 2027 and are excited by the opportunity to create value as two industry-leading public companies. In closing, we're pleased with our performance through the first half of the year and remain focused on controlling what we can control. We're executing with discipline in a dynamic market environment. We will continue to prioritize serving our customers and advancing our initiatives that extend our leadership positions in our markets.

Thank you to our teammates around the world for your hard work and commitment. I'll now turn the call over to Bert.

Bert Nappier, Executive Vice President and CFO

Thanks Will and good morning everyone. Our teams delivered a solid quarter with 6% sales growth and profitability exceeding our expectations. Our performance reflects disciplined execution across the organization as we continue to manage through a dynamic operating environment including the impacts of the Iran conflict. Our second quarter results with adjusted EPS of $2.15 reflect an increase in earnings of 2.5% versus prior year. Our results were driven by higher sales, particularly in Industrial and the benefits from our global restructuring initiatives which were partially offset by continued cost inflation and operating expenses including the impact of the Iran conflict. Our earnings also include an $0.08 impact from depreciation and interest expense as expected. Before I take you through the details of the quarter, my comments this morning will focus on adjusted results which exclude nonrecurring costs related to our global restructuring program and costs related to the planned separation of our automotive and industrial businesses. Collectively, these items totaled $93 million of pre-tax costs or $69 million after-tax.

Included in the $93 million is $16 million of cost related to the planned separation, primarily related to third-party advisor fees. Now let's turn to the details of the second quarter. Total Genuine Parts Co sales increased 6%, which included a 340 basis point improvement in comparable sales, a 120 basis point benefit from acquisitions and a 140 basis point benefit from foreign currency. Of note, each of our three segments delivered comparable sales growth that sequentially improved from the prior quarter.

Price inflation was a low single-digit benefit for each segment, with North America Auto at 2.5%, International Auto at 1.5% and Industrial at 2.5%. Our adjusted gross margin was 37.9%, an increase of 20 basis points from last year and in line with our expectations. The improvement in our gross margin was primarily driven by the ongoing execution of our strategic pricing and sourcing initiatives, partially offset by higher product costs from inflation due to the Iran conflict.

Our adjusted SG&A as a percentage of sales in the second quarter was 29.1%, an increase of 40 basis points from the prior year. On an adjusted basis, SG&A grew year-over-year in absolute dollars by $130 million. Foreign currency and acquisitions represented $60 million of the year-over-year growth, with foreign currency representing about half of this. The remaining $70 million of core SG&A growth was up 4% from the prior year. Within our core SG&A we experienced higher costs in health care, freight and rent.

Notably, U.S. health care expenses are up approximately 15%, while freight and rent expenses are up mid-single digits. During the quarter, people-related costs as a percent of sales were roughly flat versus prior year, a testament to our restructuring initiatives and cost actions which are working to bend the curve on rising costs. Year to date we've incurred restructuring costs of $134 million and realized $55 million of cost savings including approximately $30 million in the second quarter for a benefit of $0.16 per share.

For the quarter total adjusted EBITDA increased 4% with adjusted EBITDA margin of 8.7%, down 20 basis points year-over-year. During our Q1 call, we shared our perspective that the Iran conflict would have a $10 million to $20 million negative impact on EBITDA for the second quarter from higher operating expenses. We finished the second quarter with an estimated $16 million negative impact to EBITDA in line with our expectations. During the second quarter, our EBITDA performance within the three business segments includes the following highlights: For the North American Auto segment, EBITDA increased 6% with EBITDA margin of 8.2%, up 20 basis points from last year driven by sales and our restructuring and cost actions. International Auto segment EBITDA increased 6% with EBITDA margin of 9.4%, down 20 basis points from the prior year. The decrease in EBITDA margin was primarily driven by a headwind from inflation and people costs as a result of mandatory minimum wage increases as well as higher freight and rent expenses. This was partially offset by the benefits of our restructuring and cost actions.

Industrial segment EBITDA increased 10% with EBITDA margin of 13.1%, up 30 basis points year-over-year. The increase was driven by gross margin expansion which benefited from our strategic pricing and sourcing initiatives, partially offset by profit headwinds in our Motion APAC business due to weak market conditions. Turning to our cash flows, year to date we have generated $464 million in cash from operations. Our cash flow from operations benefited from an improvement in net working capital of approximately $260 million for the first half of 2026.

We invested $205 million in the business in the form of capital expenditures as we continue to modernize our supply chain infrastructure and IT systems. As an example, we are currently in flight with two state-of-the-art distribution centers at NAPA that we expect to go live at the end of the year. In addition, we also returned $288 million back to our shareholders in the form of dividends. Now turning to our outlook, as we detailed in our press release this morning, we are reaffirming our guidance for 2026 adjusted earnings per share while updating other elements of our outlook for the full year.

We now expect diluted earnings per share, which includes the expenses related to our restructuring efforts and year-to-date separation cost, to be in the range of $5.90 to $6.40. We continue to expect adjusted diluted earnings per share to be in the range of $7.50 to $8.00, up 5% at the midpoint of the range versus 2025. Note, our adjusted EPS does not include one-time cost associated with the separation. We will continue to be transparent and call those out as they are incurred.

We had a good start to 2026 and our year-to-date results are well ahead of our internal expectations. Absent second half headwinds, our performance would leave us tracking towards the high end of our earnings range for the year. However, while we are reaffirming our full year adjusted earnings per share guidance, our expectations for the remainder of 2026 take into account a more prudent view of the second half for global automotive given the continued volatility around the Iran conflict, the sustainability of improved market conditions in Europe, and the performance of our independent owners in our U.S. NAPA business. Given the situation in Iran and based on our experience in the second quarter, our updated guidance includes the following assumptions. First, our revenue outlook incorporates moderating demand in global automotive as our experience indicates that higher energy prices from the Iran conflict are weakening consumer sentiment. With the conflict persisting as we begin the second half of the year, we expect this trend to continue and have lowered our outlook for revenue for global automotive for the remainder of the year by approximately a half a percentage point.

The specific adjustments to our outlook can be found on pages 9 and 10 of our earnings presentation on our website. Our outlook for gross margin reflects continued cost increases from our suppliers as they face higher input and shipping costs. Our global teams are working with our supplier and vendor partners to manage any potential increases in a strategic and thoughtful manner. Broadly, we expect to pass through many of these cost increases and as a result, we have not updated our expectations for gross margin for the remainder of the year.

Finally, we have incorporated revised assumptions on operating expenses, including higher freight and fuel costs. We now expect $20 to $30 million of incremental costs for the remainder of the year as a result of the Iran conflict. Collectively, given these factors, we expect our first half outperformance to be offset by a moderated outlook for the second half, leaving performance expectations for the year that are aligned to our reaffirmed outlook and business plan.

While we maintained our adjusted earnings per share guidance, I want to reemphasize a few points within our fiscal 2026 outlook, starting with sales. We continue to expect total Genuine Parts Co sales growth in the range of 3 to 5.5%. Our outlook assumes that market growth will be roughly flat and that the benefit from pricing, including tariffs and inflation, will be approximately 2%. Our sales outlook assumes the benefit from M&A carryover and about a point of growth from our strategic initiatives and about a point of benefit from foreign exchange.

We continue to expect expenses associated with the transformation activities and cost actions underway to be in a range of $225 million to $250 million with an anticipated benefit in 2026 of $100 million to $125 million. These expenses do not include any costs associated with the separation of the businesses. Beyond these aspects, the remaining elements of our guidance remain unchanged and can be found in our earnings presentation. As we previously noted, our guidance includes an impact of approximately $0.30 for 2026 in depreciation and interest expense as we continue to invest in the business for growth.

Before I close, I'd like to share some additional comments around the separation of the businesses. We have completed our analysis of the estimated allocation of Genuine Parts Co's current corporate costs across the global automotive and global industrial businesses. For context, in 2025, our corporate costs were approximately $360 million and included costs related to executive leadership, IT, human resources, cybersecurity, legal, finance, asbestos defense, and our A/R sales agreement.

Over the past three years, we have consolidated many functions at the corporate level and worked to streamline and optimize the cost of these activities. Based on our analysis, we estimate $210 to $230 million of our current corporate costs to be allocated to the global automotive business, which includes approximately $20 million related to asbestos litigation costs. In addition, post separation, we expect $25 to $40 million of dis-synergies for Global Automotive as we outlined on our first quarter call, and we will work to be at the low end of that range.

In total, between the allocated corporate costs and previously disclosed dis-synergies, we expect the pro forma global automotive business to incur an additional $250 million of costs. The remaining corporate costs consist of two categories. First, our corporate costs include approximately $50 to $75 million of resources that will support Global Industrial to operate as a standalone public company. Said differently, these corporate costs will fund the previously disclosed $50 to $75 million of standalone costs to support Motion as a public company and do not represent an incremental cost to Global Industrial.

When combined with the previously disclosed dis-synergies for Global Industrial of $25 to $40 million, we expect the pro forma global industrial business to incur an additional $100 million in costs. We have included an illustration of the allocation of the corporate cost, dis-synergies and pro forma EBITDA for each business in slide 11 of our earnings presentation. These estimated costs represent the targeted level of cost for each business as it exits year one post separation and would be a level of cost that is further refined and optimized over time.

The remaining category of corporate costs is approximately $50 million of financing fees associated with our accounts receivable program, which remains under review as a part of the broader capital structure work stream. We expect to continue refining these estimates as separation planning and capital structure decisions progress through the remainder of 2026. In closing, we are encouraged by our first half results and the continued progress we are making across the business.

Our teams remain focused, agile and disciplined as we execute against our operating priorities and advance our separation activities. While the external environment remains challenging, we are confident in the strength of the business and our ability to deliver for our customers and shareholders. Thank you and we will now turn it back to the operator for your questions.

OPERATOR

Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star then the number one on your telephone keypad. And may I inform everyone that we allow only one question and one follow-up for each. Again, that will be star one on your telephone keypad. One question and one follow-up only. We have your first question, it comes from Greg Melick from Evercore. Please go ahead.

Greg Melick, Analyst at Evercore ISI

Hi, thanks. My first question is on the inflation and price environment. I think Bert, you mentioned the Iran conflict and some of those costs and that you expect to be able to pass those through in the back half. So would back half inflation be running similar to the 2% we had in the first half or do you think it'll be higher or lower?

Bert Nappier, Executive Vice President and CFO

Well Greg, I think on the top line it's going to run right around that 2%. As we've said for the full year, the Iran conflict might have given us a little bit more lift in the second half. We didn't really model that into our updated guidance. So what we've seen so far, the year runs in that low single-digit range in total inflation, with about half of it coming from tariff and the rest of it I would put at the feet of just general inflation or a combination of that plus the Iran conflict.

On the SG&A side of things, I would say that we're modeling, again, low single-digit impact from inflation for the full year. Obviously we've got outsized pressure there in rent and freight from the Iran conflict. That's all running mid single-digit. But as you heard me say in my prepared remarks, we are doing a bit better on controlling salaries and wages and keeping that kind of level as a percentage of sales year over year. So that plus our restructuring is working to bend the cost curve as much as we can.

On cost of goods sold, I think again it's in that low single-digit range. So as we think about the rest of the year, we're really modeling around all three — revenue, cost of goods sold, and SG&A — running in the low single-digit range. And we factored all of that into the updated guidance and the headwind I gave on the operating side of the expenses as well.

Greg Melick, Analyst at Evercore ISI

Thanks. Then my follow-up is more on strategy. Will, thanks for being clear about not in discussions with a competitor for Global Auto. I'd like to maybe take a little broader. As you're thinking about the next six months preparing for the separation, how are you thinking through potential M&A opportunities both for either Motion or GPC Auto to acquire? Or the flip side, if there were people interested in buying parts of those businesses, how are you sorting through that?

Will Stengel, Chairman & CEO

Yeah, Greg, listen, I think as we articulated pretty clearly, we're really focused and excited on creating two public companies and that's the primary path and that's where we're spending all of our energy. And I think it was important for us to provide that clarity to the market and our diverse group of stakeholders. So that was objective number one. As it relates to M&A, we are always actively building our bolt-on M&A pipeline. As you know, it's always hard to predict timing of when deals come together.

And so that's an important part of our strategy as two public companies on both the automotive and industrial side. So that activity is in flight, ongoing, and we'll continue to pursue that. You bring up a good point, you know, as it relates to doing the work for a deal while you're doing the separation. I think we've got to be practical about that, but important part of our strategy moving forward. And we like the businesses as constructed and the growth profile and the value creation opportunities we have in both all of automotive and all of industrial as public companies.

We're looking forward to sharing that with everybody in December.

OPERATOR

Your next question comes from the line of Chris Horvers from J.P. Morgan. Please go ahead.

Chris Horvers, Analyst at J.P. Morgan

Thanks. Good morning, guys. So I wanted to dig in a little. I wanted to dig a little bit on the cadence of the quarter. May and June slowing down and looking similar, but a rebound in July. What do you attribute the rebound in July to? Do you think some of that was weather? Maybe some lag on gas prices pulling back? And, you know, as you look forward, given that gas prices are back up, you know, what do you think about the ability to lap harder inflation and see volume growth accelerate in the U.S. NAPA business or NAPA.

Bert Nappier, Executive Vice President and CFO

Hey Chris, it's Bert. I'll take a crack at that one and maybe broaden it just a little bit. I think when you think about Q2, I'd be careful to over-index on the sequence of the months. We wanted to be clear just because we think it's important color. But there's a lot of anomalies within the quarter in terms of what was happening around Iran. You think about some of our customers getting a little ahead of the curve on potential price increases early in the quarter.

I think that could have impacted a little stronger April than maybe otherwise would have been expected. Same to some degree in May. There was a lot of trying to call the ball on anticipated price increases, anticipated increase in gasoline prices. So when we look at the quarter, I think the best way to look at the quarter when you think about the performance of NAPA is to look at that full quarter — 2.6% growth in the quarter on a comp basis — and then translate that into how we've seen the beginning of July.

And so as Will said in his prepared remarks, July started in line with our expectations. That translates to low single-digit growth in July. And so we've seen the NAPA business come back off of what I think was kind of an anomaly there in June in terms of the performance. And coming back on the fact that we've seen a little bit of moderation in gas prices to start the quarter, but at the same time, unfortunately we do not have an end to the Iran conflict.

And so that's why I think we're being prudent as we've updated the second half of the year with respect to the rest of the business. As we started the quarter, I'd start with industrial and just say that July picked up where June left off with continued really solid growth across the industrial complex. When we think about Europe, we're holding on to some of that sequential improvement we saw in Q2. So that's a positive story there as well, and we're pleased with how we're starting the quarter and our teams are very focused on delivering another very solid Q3 when we think about some of the things we have to lap in the second half of the year.

As I said in my response to Greg's question, I think we've been really thoughtful about how we're lapping inflation and all of these other different moving pieces to come in with low single-digit assumptions around inflation for top line and low single-digit assumptions around cost of goods sold and SG&A as we balance the rest of the year. But in having said that, we did give you some updated views on different elements of the guide. We took a little bit of the revenue growth out of the global automotive business because we think that's prudent just based on overall sentiment as well as some operating expenses similar to what we saw here in the second quarter. We are feeling real increases in freight and fuel and I don't expect that to change as we go through the rest of the year until we see some resolution with the war.

Chris Horvers, Analyst at J.P. Morgan

Great. Thank you for all that color. And then as a follow-up, you have a pretty strong gross margin rate and gross margin inflection year over year in the back half relative to the performance in the first half. So is there something that's going away and on the other side, what's accelerating to drive that improvement? Thanks so much.

Bert Nappier, Executive Vice President and CFO

I'll start with what's on the really positive side of the house, which what's driving the improvement? We've got great work happening at both industrial and automotive in terms of gross margin improvement. You'll hear a lot more about some of our strategic plans at the respective investor days for each business later this year. But the strategic work we're doing in sourcing and pricing is driving a really nice outsized performance of both businesses and that accelerates as you move through the back half of the year.

So we feel confident about where we sit from a gross margin rate expansion perspective as we get into the second half, particularly with the execution continuing to accelerate. We also moved past some of the algebra on the comps. The comps on gross margin are tougher in the first half of the year, particularly as we were lapping the acquisition benefits that we saw last year, particularly on the NAPA side of the house. When you think about Q2 a year ago, we were up 110 basis points on gross margin.

About half of that came from acquisitions and we still improved gross margin in this quarter by 20 basis points. So some of those comps ease in comparison from the acquisition benefits we were getting a year ago as we move into the second half. And so that gives us a lot of confidence into how we're moving into our expectations for gross margin expansion for 2026.

OPERATOR

Your next question comes from the line of Scott Ciccarelli from Truist. Please go ahead.

Scott Ciccarelli, Analyst at Truist

I think that's a new one. Scott Ciccarelli, can you guys clarify your comments around financing fees being under review from your cost allocation slide? Meaning could we see changes around your supply chain financing program with potential implications around working capital?

Will Stengel, Chairman & CEO

Hey, Scott, I'll help you out too. Since it's Scott Ciccarelli, I'll do you a favor and make sure everybody's got that right pronunciation.

Scott Ciccarelli, Analyst at Truist

I appreciate that.

Bert Nappier, Executive Vice President and CFO

Yeah, no problem. Hey, look, the AR sales program, this factoring program that we have, is the tool and the instrument that generates that 50 million. It's not meant to imply that we're looking at supply chain financing any differently. That's an important part of the backdrop of the global automotive landscape. It's a really important part of our working capital construct. And so that was not meant to imply that we're looking at anything different on supply chain finance, particularly because of how important it is to the marketplace.

It's really about this AR factoring program that we have in place. And look, as we get into the second half of the year, we're turning our attention now as we have been giving you all different pieces of information. The end-of-summer work is around capital structure and capital allocation. And so that 50 million relates to that program. And as we evaluate the capital stack and the cap structure stack, we'll make sure that we're being thoughtful about that.

It could stay, it could be a different instrument in the future. And that's why we call the 50 million out separately.

Scott Ciccarelli, Analyst at Truist

Got it. Understood. And then your comments just regarding the Iran conflict, you brought it up a couple different times. Is there much of an impact at all on the industrial side or is that really focused on auto because of the flow-through of gas prices?

Will Stengel, Chairman & CEO

Scott? I would say there's less impact. I would characterize the impact in industrial more as just kind of qualitative overhang with customer discussions. You heard in our prepared remarks, the sentiment has sequentially improved. The customer discussion tone is positive. But you can't have a customer discussion without, of course, talking about the conflict in the Middle East. But we're not seeing it translate in the same way that it does on the global auto in terms of, you know, the financial statements.

Bert Nappier, Executive Vice President and CFO

Yeah, Scott, I'll be really clear. Of the $16 million in the quarter, all but a million of it belong to Automotive.

Scott Ciccarelli, Analyst at Truist

Understood. Okay, thanks guys.

OPERATOR

Your next question comes from the line of Michael Lazar from UBS. Please go ahead.

Michael Lazar, Analyst

Good morning. Thank you so much for taking my question. My first question is on the industrial business. You mentioned that the momentum has continued into July. Obviously the comparisons for the industrial business get meaningfully more challenging as you move through the back half of the year. Has that already started in July? Meaning the two-year stacks have accelerated. This is just going to verify that the outlook for the back half would be reasonable in light of the math as well as maybe some moderating inflation in that business.

Bert Nappier, Executive Vice President and CFO

Yeah, Michael, I think the outlook for Motion is pretty robust. Really strong first half. The team is executing and firing on all cylinders. We believe that the PMI readings for six straight months are supportive. We think customer sentiment is supportive. And so I think there's a lot to be bullish about when you think about Motion. I would say that as we've thought about our updated guidance, we've factored in not only the comps that are there, but the current performance.

As I said a few minutes ago, the Motion business has carried its June strength into July. And so we continue to feel good about where the business is, given all the moving pieces. And as Will just mentioned, the Iran conflict has a little lesser of an impact on that side of the house than the automotive. So we're on track for a great year there. And assuming that everything stays intact from a PMI and sentiment perspective, then I think you'll see Motion deliver a fantastic fiscal year.

Michael Lazar, Analyst

Okay, thank you very much for that. My follow-up question is, as Genuine Parts Co moves closer to its separation, the market is trying to assign a value to each of the independent parts. There's some pretty well-developed comps for both segments. But if you take the auto business, perhaps it is trading well below where the peer set is and that could be due in part to the slower performance, the slower sales performance for the independent. So with that being said, what do you think the key unlock is for the sales to the independents to accelerate from here?

Is it simply a function of the macro or is there an initiative that you can put in place that would help to address that? And when you talk about the acceleration of the business in July, has that been a function of end market demand or maybe some more buying behavior ahead of the end of these tariffs that are kicking in at the end of this week?

Will Stengel, Chairman & CEO

Thanks. That's a lot to unpack. Michael, that's like three questions inside your one follow-up question. But let's start with the independent owners. Look, I really believe, and I think we all believe, the independent owners are a material opportunity for the business going forward. It's an important part of our business, it's an important part of our model, and they're an important partner to us. And so I'll start there. And I think the way we think about moving forward is building out of the strategy and the playbook we've been running for the last couple of years on the company-owned store side of the house.

We've talked extensively about the investments we've made in running great company-owned stores, and there's no better evidence than the sequential improvement that we've seen in the company-owned stores over the past 10 quarters. To give you some data there, we've moved from company-owned store sales growth of negative a half percent in 2024 to positive 2.3 in 2025. And we started 2026 on the company-owned store side of the house with a 5.5% growth in Q1 and a 4% here in Q2.

And if you just look back to Q2 of last year we were less than 2%. So our progress is clear, but we're never satisfied and we remain focused on continuous improvement both on company-owned stores and on independent owners. That's an important backdrop because our teams at NAPA are now turning to this playbook, to our independent owner base, and we're seeing really exciting opportunities there to drive performance optimization. We've delivered some data analytics to quartile the owners into four groups, and we've designed solutions—so this is the part that's new and different and how we think we can really drive performance moving forward.

This is the new part. We've designed solutions for the independent owners to address sales excellence, pricing, inventory and purchasing, operations and technology so that we can make their performance better and take everything that we've done that's proving to be successful and translate it over to the team. These programs are in the very early phases and drive our excitement, particularly as we look to a global automotive investor day later this year.

Just as a quick example, our top quartile of independent owners grew at 5% in the second quarter, demonstrating their competitiveness in the marketplace. So we've got a clear path for leveling up the performance of the entire independent owner base. And we experienced sequential improvement in independent owners from Q1 at 1% growth to Q2 at 2% growth. So we're really excited about the opportunities there. On the second part of your question on July acceleration, I wouldn't put it at the feet of any one thing.

I just think that we're seeing, as I said a minute ago, a little bit of a kind of an anomaly in the pattern of Q2. And we're seeing July come back and start at the same place that the full second quarter performed. And so we're not looking at any one in particular pocket of goodness. It's broad-based strength at the low single-digit level for NAPA as we start the month and as we start the quarter.

Michael Lazar, Analyst

Thank you very much.

OPERATOR

Your next question comes from Brett Jordan from Jefferies LLC. Please go ahead.

Brett Jordan, Analyst at Jefferies LLC

Hey, good morning, guys. Brett, on the national account strength you commented on, are you seeing relative outperformance of national accounts, or obviously one of your competitors has been maybe cutting back on some of their national account business. Is it share gain, or is it just the case?

Will Stengel, Chairman & CEO

We think it's both. We're doing a lot of work, Brett, to make sure we're being super thoughtful as we think about that piece of the business. We've done some board changes to make sure that it's getting the right level of focus. And with new leadership there, we've done a lot of analytics work to think about the profitability of that customer segment. So there's a lot of attention on that part of the business, which is translating into wins. We think that the competitive backdrop is also constructive, and so we're taking advantage of the moment to lean in there.

It's an important part of our business, and we're continuing to improve our operations too, to support it and make sure that we've got the operating processes to be a great partner in that regard. So a lot of good stuff there and an area of focus for us as we continue to lean into it.

Brett Jordan, Analyst at Jefferies LLC

And I guess you also called out strength in UK and Germany. How does that trend compare to the underlying market? I mean, I think Stahlgruber is doing an ERP implementation in the quarter. Do you see share gain substantially above the underlying market growth?

Will Stengel, Chairman & CEO

We feel really good about the share position that the European team in all of their geographies—but in the ones that we called out, the UK—we've made some big investments in our infrastructure there in the supply chain, and those investments, as we expected, are starting to bear fruit. And as you said, we've got a very strong kind of regional footprint in Germany and taking advantage of moments in the market there to win some share as well. So, overall, as we said in our prepared remarks, the European platform is in great shape.

It's got a great team, a lot of focus, and it's a choppy market over there, but it's sequentially improving, and we're optimistic we'll keep it going.

Brett Jordan, Analyst at Jefferies LLC

Great. Thank you.

OPERATOR

We have no further questions in the queue. I'll turn the call back over to Will Stengel for closing comments.

Will Stengel, Chairman & CEO

Thank you, everybody, for joining us today. We look forward to updating you on the separation and our progress as we move through the quarter on the October earnings call. Thanks again for being with us today, and we appreciate your support. Have a great rest of the week.

OPERATOR

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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