Genuine Parts Company Q4 2025 Earnings Call Transcript

Genuine Parts Company (NYSE: GPC) Q4 2025 Earnings Call dated Feb. 17, 2026

Presentation

Operator

Sam. Sa. Sa. Good day ladies and gentlemen and welcome to Genuine Parts Co. Fourth quarter 2025 earnings conference call. Note that today’s call is being recorded at this time. All participant 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 star or zero for the operator. At this time, I would like to turn the conference over to Tim Walsh, Vice President of Investor Relations. Please go ahead, sir.

Tim Walsh — Head of Investor Relations

Thank you and good morning everyone. Welcome to Genuine Parts Company’s fourth quarter 2025 earnings call. Joining us on the call today are Will Stengel, Chair Elect and Chief Executive Officer and Bert Napier, 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 Company website. Today’s call is being webcast and a replay will also be made available on the company’s website after the call. Following our prepared remarks, the call will. Be open for questions, the responses to. Which will reflect management’s views as of today, February 17, 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 involve 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 — President and CEO

Thank you, Tim. Good morning everyone and thank you for joining our fourth quarter and full year 2025 earnings call. Before we start, as always, I want to thank our 65,000 global teammates for their efforts in serving our customers. Our employees are at the core of our success as they work every day to deliver solutions and service to our customers. Our 2025 achievements are a result of their hard work and dedication. We shared a significant and exciting update for Genuine Parts Company this morning. Our intent to separate into two independent publicly traded companies. Our automotive businesses will continue to be the largest global automotive aftermarket replacement, parts and solutions provider in the world.

And our global industrial businesses will create a standalone best in class industrial solutions platform. I’ll start this morning by sharing additional perspective on the announcement and then discuss our full year performance. Bert will discuss the financial results for the fourth quarter trends to start the year and our 2026 outlook before we open it up for questions. For nearly a century, Genuine Parts Company has a proud history of leadership and driving change in its industries. Always focused on serving our customers and taking action to strengthen the business as markets evolve. Over the last decade, we have established leading global footprints in attractive geographies, simplified our business mix and accelerated strategic investments to further advance and differentiate our business.

More recently, despite dynamic markets, we have focused on a broad based supply chain and technology transformation effort and we have simultaneously invested in talent and capabilities across the company. We’ve complemented our work with significant acquisition activity to add scale and local service in our priority markets. We’ve leveraged a global team approach to evolve the business and increase the intrinsic value of the company. As we shared Last September, throughout 2025 we performed a comprehensive strategic and operational review of the business with the objective to understand how best to unlock our full potential and maximize shareholder value.

Our work in partnership with our advisors included an assessment of our business structure, operational and strategic growth opportunities and corresponding capital allocation priorities. Following the detailed review, we have concluded that separating our global automotive and global industrial businesses is the best path forward for the company, our people, our customers and our shareholders. Today we have two scaled market leading companies with compelling but different growth strategies. This new business structure will enable each to capture the opportunities most effectively. We believe that separating automotive and industrial into two public companies will set both up for significant long term growth.

The transaction provides clarity in many important ways. Each company will be more agile and more focused. Each will have tailored strategies with business specific investments that are directly aligned to their respective customers and market needs. Each will be well capitalized and have greater financial flexibility with specific capital allocation strategies and each will be easier for investors to appreciate and understand with clear differentiated value propositions. Global Automotive with its globally recognized NAPA brand will be a pure play automotive aftermarket replacement, parts and solutions provider. The separation will allow Global Automotive to more effectively capitalize on common automotive customer needs and market trends, particularly with the growing commercial customer.

Its geographic diversity creates a balanced and global platform with identified market share opportunities. Napa’s unmatched loyalty built on trusted product quality, deep relationships and a vast global network will continue to be core differentiators as it competes in an over $200 billion addressable market that’s non discretionary in nature. There are more than 550 million used cars on the road in the markets we serve with an average age of more than 12 years, which creates compelling opportunities. Our global automotive business is currently executing a transformation program to deliver growth in excess of the market and margin expansion while optimizing working capital and increasing return on invested capital.

These will remain hallmarks of the business on a standalone basis. Significant progress has already been made in each geography with investments deployed and capability building. Regarding its capital structure, the business is targeting to maintain an investment grade credit rating and will have a balanced capital allocation program to support the strategic vision of including organic investment, accretive bolt on acquisitions and returns to shareholders. Turning to Global Industrial Motion is a leading diversified industrial distributor serving over 180,000 customers across a diverse group of end markets. At approximately two times the size of its next competitor, we have the largest offering of mission critical industrial maintenance and repair parts and value added solutions to keep manufacturing facilities operating and efficient.

We differentiate with a technical product and industry expertise and go to market with a unique omnichannel sales strategy that leverages deep long standing supplier and customer relationships. Motion operates in a highly fragmented $150 billion global market with defined commercial and operational initiatives to extend its industry leading position. Motion will build on its best in class financial performance by delivering profitable sales growth, operating leverage that translates into improving double digit EBITDA margins, strong free cash flow generation and attractive returns on invested capital. Motion is targeting to maintain an investment grade rating and with strong cash flow characteristics and the backing of a dedicated balance sheet, we’ll be well positioned to make strategic growth investments.

Motion will continue to pursue strategic and bolt on acquisitions to add to priority product, market and solutions expertise. The automotive and industrial businesses already operate independently. There are no shared customer facing roles and there are limited shared facilities. There’s an ongoing body of work to finalize all the separation details and there are a select number of IT sourcing and back office support functions that we will manage and transition. The initial estimates of the dis synergy costs associated with the separation are manageable and we will share more information as we finalize our estimates. The separation is planned to be tax free to GPC shareholders.

We’ll provide further updates on leadership and governance, standalone financial profiles and long range targets, capital structure, capital allocation strategies and other separation matters as we move through our process. Us we’re working at pace and targeting to complete the separation in the first quarter of 2027. Subject to customary approval processes, we contemplate holding investor days for each business in the second half of 2026 and we look forward to sharing more about the exciting vision for these two companies as we progress with that. As we reflect on 2025, it was a dynamic year across the businesses and geographies, marked by tariffs, global trade policies, interest rates and a cautious consumer.

To start the year, we built plans that assumed sequential market improvement. As the year progressed, despite the environment realities, we advanced our strategy and delivered growth, expanded gross margins, took proactive action to offset cost inflation, and continued to invest in strategic capabilities. A few highlights from the year include total GPC sales were 24.3 billion, an increase of over 800 million or 3.5% compared to 2024. Gross margin expansion for the third consecutive year, driven by pricing, sourcing and acquisitions, global restructuring initiatives and cost actions, which provided an approximately 175 million benefit in 2025 above our expected range of 110 to 135 million, and investments of approximately 470 million across our businesses, primarily in supply chain and technology.

In addition to the investments in our business, we returned over $560 million to our shareholders in the form of dividends. This morning our board approved a 3.2% increase to our dividend, which marks the 70th consecutive year GPC has increased the dividend. While we had many accomplishments in 2025, our full year results came in below our expectations, largely driven by weaker than forecasted sales performance in the fourth quarter which impacted profit. Of note, despite our overall sales growth in the quarter, we saw weakening of market conditions in Europe and sales below our internal forecasts. For US Independent owners, there was sequential improvement through the year across many areas of the business that are encouraging and in 2026 we’ve started strong and will look to build on that momentum as we progress.

BERT will provide more commentary before we touch on our results by business segment. You’ll see in this morning’s earnings release that we made a change in the way that we report our global automotive business. We made this change to provide increased transparency and better align with how we manage the business. We’re now reporting three business segments, North America Automotive, which contains our automotive businesses in the US and Canada International Automotive, which contains our automotive businesses in Europe and Australasia and Industrial. There are no changes to how we report Industrial, which as a reminder is predominantly North America.

Now turning to our full year results by business segment. During the year, total sales for industrial were 8.9 billion, an increase of $200 million or up approximately 2% versus the same period in the prior year with comparable sales up 1.5%. Recall that in the first quarter of 2025 the US had one less selling day which impacted sales by 40 basis points. We believe our industrial business grew in excess of the market in 2025 despite a sluggish industrial and manufacturing economy as evidenced by PMI being below 50 for the last 10 months of the year. This performance reflects Motion’s diverse end markets, extensive product offering and strong execution focused on customer service via technical and solution based selling.

Looking at the performance across our end markets, we saw growth in seven of our 14 end markets during the year which is up from four in 2024. We saw notable improvement within one of our largest end markets, equipment and machinery, and growth in food products, pulp and paper, aggregate and cement and fabricated metals amongst others. This growth was partially offset by softer demand in automotive, lumber and wood and oil and gas. Each value add solutions segment such as automation, conveyance and repair services saw improvement throughout 2025. Our core MRO business which accounts for approximately 80% of motion sales, was up over 3% during the year with shared strength in both our local account and corporate account customers.

We have seen an increase in planned outage projects as we closed the year where customers stop operation to do maintenance and repair work as deferred maintenance needs are starting to be addressed in the fourth quarter. We were also encouraged with the outsized strength with small and medium sized customers driven by targeted second half sales initiatives. The remaining 20% of motion sales which originates from more capital intensive projects was up approximately 1% during the year as customers continue to selectively pursue larger projects. E Commerce had another strong growth year in 2025 with penetration as a percent of total sales up over 800 basis points to approximately 45% as we continue to integrate more closely with our customers via technology.

While one month doesn’t make a trend, we’re also encouraged to see January PMI above 50 for the first time since February 2025. Industrial segment EBITDA in 2025 was approximately 1.1 billion and 12.9% of sales, representing a 30 basis point increase from the same period last year. The Motion team showed outstanding operational discipline during the year as they navigated tariffs, managed a soft demand environment and offset pressure from cost inflation. Driving operating leverage on low single digit growth is great execution. Motion’s organization and cost structure is set up nicely for the rebound in industrial demand and we expect to see strong operating leverage as the market improves.

Turning to our automotive segments, starting with North America Automotive, total sales for the year increased approximately 3% with comparable sales growth up approximately 0.5% in 2025. North America Automotive segment EBITDA was 672 million which was 7.1% of sales representing a 70 basis point decrease from the same period last year. The decrease year over year reflects ongoing pressures from cost inflation in higher salaries and wages, health care, rent and freight which was partially offset by our restructuring initiatives and cost actions within North America. Total sales in the US were up approximately 4% for the year with comparable sales up approximately 0.5%.

Reminder that in the first quarter the US had one less selling day which impacted sales by 40 basis points. In 2025 we saw strong sales growth from our company owned stores with comparable sales up approximately 2.5% for the full year and approximately 4% in the second half. Independent purchases during the year were down approximately 1%. We remain pleased with our progress on running better company owned stores and the sequential improvement throughout the year. 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 approximately 1% for the full year and approximately 2% in the second half.

By customer type. Comparable sales to our commercial customers for the year were up approximately 2% while sales to our retail customers decreased approximately 4%. We saw the strongest growth with our auto care and major account customers which were up mid single digits across our product categories. During the year we saw solid growth 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 US automotive business. Discretionary categories remained softer and were flat to slightly positive for the year with specific category initiatives in our tool and equipment offering helping to offset some of the weakness.

Our value and service proposition were key to our success in winning business during the year. Despite the tariff driven inflation environment, customers continue to use discretion and are looking for value. However, deferred maintenance will ultimately need to be addressed as you can only defer for so long. Lastly, in 2025 we further advanced our acquisition strategy in our US automotive business to continue to strengthen our relative footprint in strategic priority markets by acquiring over 100 locations from both independent owners and competitors. Additionally, in October we closed on the acquisition of Benson Auto Parts, one of the largest independent aftermarket players in Canada.

Looking at our performance in Canada, our team had a strong year with total sales increasing nearly 5% in local currency versus the same period last year with comparable sales increasing approximately 3%. We believe our business grew in excess of the market in 2025 and we’re proud of the team’s execution throughout the year to deliver solid results. Moving to our international automotive business, total sales during the year increased approximately 5% with comparable sales up slightly. International automotive segment EBITDA for the year was 544 million, which was 9.3% of sales and represents a 90 basis point decrease from the same period last year.

Similar to North America, the decrease year over year reflects ongoing inflation, cost pressures from higher salaries and wages, health care, rent and freight, which was partially offset by our restructuring and cost actions by geography. In Europe, total sales for the year increased slightly in local currency with comparable sales down approximately 2%. These results were below our expectations due to moderated market conditions across our geographies in the second half of the year. Through the year, we took aggressive actions in Europe to align the business with market realities. For example, we closed underperforming locations, consolidated distribution centers, reduced headcount and reduced general and administrative costs.

Despite a challenging environment, we believe we performed in line or better than the market in 2025. Driven by strength with key account customers, the continued expansion of the Napa brand, sourcing initiatives and accretive bolt on acquisitions, the difficult work completed in 2025 will position the business well as the market recovers. Finally, our team in Asia Pacific had another strong year in 2025 and further distanced themselves as the market leader. Our team delivered double digit growth in local currency driven by both organic initiatives and contributions from acquisitions. Total sales increased approximately 10% during the year with comparable sales up approximately 5%.

Both trade and retail businesses posted strong results for the year with standout performance in retail relative to the competition. The two wheeled division also had an exceptional year in 2025, growing sales 20% versus 2024 as it continued its multi year track record of impressive accretive growth. Our in flight initiatives are working as designed and the local team is energized to build on the strong momentum in 2026. Before I close, I want to provide a quick update on First Brands Group. Following their bankruptcy filing, our teams quickly mobilized plans to ensure operational and service continuity. As the situation evolved, we methodically executed the plans with alternative suppliers.

Thanks to the readiness, we do not expect any operational and product disruption in 2026. Bert will share additional comments on the accounting implications of the bankruptcy in his remarks. In closing, thank you to our customers, owners, supplier partners and shareholders for your continued trust and support. This is an exciting time for genuine parts company as we’re proactively pursuing a strategy to unlock value and position each business and geography for long term success. Today we have two leading distribution platforms in attractive industries with defined plans to capture exciting opportunities. The clarity this transaction provides will accelerate our ability to to deliver performance and extend our leadership positions in our industries for years to come.

I want to reaffirm my sincere thanks to our GPC teammates for your effort and commitment this year. While the announcement today represents change in how we plan to structure the business, it’s business as usual in 2026 as we navigate the market and focus on doing what we’ve done for a long time. Take care of our customers and teammates every day. Thanks for all you do for Genuine Parts Company. I’ll now turn the call over to Bert.

Bert Nappier — Executive Vice President and Chief Financial Officer

Thanks Will and thanks to everyone for joining the call. We closed 2025 with fourth quarter sales growth of 4% and adjusted gross margin expansion of 70 basis points. Our sales performance was highlighted by a near 5% increase in sales within industrial as well as strength in our U.S. nAPA company owned stores with approximately 4% comparable sales growth in the quarter. Despite these tailwinds, our fourth quarter adjusted earnings of $1.55 were below prior year as the benefit from higher sales and gross margin expansion was offset by our previously communicated headwinds from depreciation and interest expense and lost pension income.

Our fourth quarter results have been adjusted for one time items including the settlement charge associated with the planned termination of our pension plan. Before turning to the specifics of the quarter, I’d like to share a few thoughts on our performance relative to our original outlook. As we began the quarter, we expected stronger fourth quarter sales growth to offset the collective headwinds from depreciation, interest and lost pension income resulting in earnings growth. However, our results fell short of our expectations entirely driven by weaker sales in Europe and lower sales to independent owners in our US Napa business.

Our gross margin expansion and absolute dollars of SGA expense were right on our forecast and the underlying fundamentals driving our segments remain solid. With respect to Europe, underlying market conditions deteriorated sequentially from September to October and then again in November, leaving the underlying market growth down mid single digits for the quarter. This deterioration led to a decrease in sales for Europe versus our expectations for low single digit growth. The impact of these weaker market conditions had an estimated 10 cent negative impact to the quarter relative to our initial view. Despite the tough market conditions, we believe our performance was aligned with general market trends across the region.

While overall sales at Napa were up in the fourth quarter, our sales to our independent owners fell below our expectations. Comparable sales to our independent owners were flat in the fourth quarter, down for the 1% growth we delivered in the third quarter. While we had a tough comparison to last year due to a promotional event that did not repeat this year, we anticipated the momentum from the third quarter to carry over. Our independent owners continue to navigate a challenging backdrop in the US balancing numerous headwinds while serving the needs of our customers. The lower than expected sale to independent owners created an estimated 10 cent negative impact relative to our expectations for the quarter.

Before I take you through the details of the quarter, my comments this morning will focus on adjusted results which as I mentioned include several non recurring items recorded in the fourth quarter. In total, these adjustments amounted to 1.1 billion of pre tax costs or 825 million after tax. These adjustments related to the following first, as previously communicated, the termination of our US pension plan was successfully completed in December. The termination required us to immediately recognize a one time non cash settlement charge of $742 million which represented the accumulation over many decades of the actuarial gains and losses on the plan and had been recorded as an unrecognized loss on our balance sheet.

The final settlement charge was in line with our expectations. Second, we recorded a charge of approximately $150 million for expected losses on amounts due to us from First Brands Group. The amounts owed to GPC, including rebates on purchases were subject to long term supply agreements across our automotive businesses. While we made extensive efforts to recover the amounts owed, the bankruptcy and the financial challenges at First Brands were significant given the financial and operational difficulties during the fourth quarter, we moved our business away from First Brands and executed our contingency plans with alternative suppliers. This was the right decision for our customers and moves us into 2026 with confidence in our supply chain and inventory availability.

Third, we increased our asbestos product liability reserve by $103 million which reflects a rise in both the frequency and severity of claims. While our transition to asbestos free products was largely completed in the early 1990s, our claims experience in 2025 deteriorated and gave rise to the adjustment which is not reflective of our current operations. During the quarter we had 87 million of costs related to our global restructuring program and lastly we incurred $30 million in charges related to accounting adjustments in the fourth quarter largely related to the accounting for asset retirement obligations. With that backdrop, let’s turn to the performance of the underlying business.

As we look at the fourth quarter, total GPC sales increased 4.1%, including a 170 basis point improvement in comparable sales, a 150 basis point benefit from acquisitions and a 130 basis point benefit from foreign currency. As we expected, the tariff landscape normalized as we closed out 2025 with a low single digit pricing benefit in revenue and a low single digit increase in cost of goods sold, resulting in a slight benefit to our consolidated results for the quarter. Turning to our quarterly sales results by business unit starting with industrial sales in the fourth quarter increased 4.6% with comparable sales up 3.4% in line with the third quarter.

During the quarter, average daily sales were solid and improved sequentially with December being the strongest month despite declines in PMI throughout the quarter. Sales inflation during the fourth quarter was 4%. Looking at the performance of our end markets, we experienced sequential improvement with growth in nine of our 14 end markets and strength in automotive, iron and steel, food products and fabricated metals which were offset by softer demand in lumber and wood, chemicals and oil and gas. As we look at North America automotive, total sales in the fourth quarter increased 2.4% with comparable sales up 1.7%.

Within North America, automotive, total sales and comparable sales in the US were up approximately 2% in the fourth quarter. At a high level, the comparable sales performance in the fourth quarter looked very similar to the third quarter. Average daily sales were positive in all three months. Sales inflation during the fourth quarter was slightly over 3%. We continue to see strong sales to our commercial customers which represents over 80% of sales in the U.S. comparable sales out to commercial customers increased approximately 3.5% while comparable sales to retail customers declined low single digits. Looking at the performance of our company owned stores to our commercial customers, comparable sales grew nearly 6% with strength in auto care, major accounts and fleeting government.

As will mentioned, we closed on the acquisition of Benson in Canada at the end of October which provided a nice benefit for the two months they were included in our results. Turning to our international automotive business, total sales in the fourth quarter increased approximately 6% with comparable sales down approximately 1% in Europe during the fourth quarter, total sales decreased approximately 2% in local currency with comparable sales down approximately 3% as a result of weak market conditions which were partially offset by the NAPA private label product expansion across the region. In Asia Pacific, sales in the fourth quarter increased approximately 5% in local currency with comparable sales also up approximately 5%.

Our team continues to outperform and take market share in both the trade and retail customer segments. As we turn back to our consolidated results, our adjusted gross margin was 37.6% in the fourth quarter, an increase of 70 basis points from last year. The improvement in our gross margin was primarily driven by the ongoing execution of our strategic pricing and sourcing initiatives, with all 3 segments expanding gross margin in the fourth quarter. Our adjusted SGA as a percentage of sales for the fourth quarter was 29.7%, an increase of 30 basis points from the prior year. On an adjusted basis, SGA grew year over year in absolute dollars by 88 million, including $60 million from acquisitions in foreign currency.

However, our acquisitions continue to have a positive impact to net operating profit margin. Our core SGA increased 1.7% or $28 million in the quarter. Our rate of core SGA expense growth improved from the 2.7% growth we experienced in the third quarter. Stubborn cost inflation continues to be a challenge impacting people costs, including high single digit inflation in US Health care costs as well as rent and freight. The growth of our core SGA was mitigated by a $75 million benefit related to our restructuring and cost initiatives. As our actions work to mitigate cost inflation, we made significant progress on our global restructuring efforts in 2025.

During the year we incurred restructuring costs of approximately $255 million and through the team’s hard work we exceeded expectations, realizing approximately 175 million of cost savings for a benefit of $0.95 per share. This was above our target of delivering 110 to 135 million of cost savings in 2025. For the quarter, total adjusted EBITDA margin was 7.6%, up 10 basis points year over year. The improvement was driven by gross margin expansion and the benefits of our restructuring activities, which offset cost inflation in wages, health care and rent. Our fourth quarter adjusted net income, which excludes non recurring expenses of 825 million after tax or $5.94 per share, was 216 million or $1.55 per share.

Our full year adjusted net income was $1 billion or $7.37 per share. Turning to our cash flows for the year, we generated approximately $890 million in cash from operations with $380 million in the fourth quarter and $421 million of free cash flow. Our operating cash flow in 2025 was impacted by lower earnings and higher interest payments. Our cash flows were also impacted by working capital changes associated with commercial activity in the first half of 2024 from inventory investments made at NAPA and the associated build of accounts payable and receipt of supplier incentives which did not repeat in 2025, creating a tough year over year comparison.

This headwind was concentrated in the first half of the year and our cash generation accelerated to over 700 million in the second half of 2025. In 2025, we invested approximately $470 million back into the business in the form of capital expenditures as we continue to modernize our supply chain and IT systems. In addition, we invested approximately $320 million in MA highlighted by our Benson acquisition in Canada. Now let’s turn to our outlook for 2026. We expect diluted earnings per share, which includes the expenses related to our transformation efforts, to be in a range of $6.10 to $6.60.

We expect adjusted diluted earnings per share to be in the range of $7.50 to $8, up 5% at the midpoint of the range versus 2025 adjusted EPS of $7.37. Overall, our 2026 outlook has been developed based on our expectations for underlying market conditions, modest price inflation and further gross margin expansion. We’ve also assumed continued cost inflation, partially offset by the benefits of our restructuring and transformation programs. Depreciation and interest expense will be a headwind of approximately $0.30 in 2026 as we continue to invest in the business for growth. Let me take a few moments to review the individual elements of our outlook in more detail, which we’ve expanded in light of our separation announcement.

We expect total GPC sales growth to be 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 inflation and tariffs, will be approximately 2%. Our sales outlook also assumes the benefit of M and a carryover and about a point of growth from our strategic initiatives and about a point of benefit from foreign currency. Assuming current market rates as we look at sales for the individual business segments, we expect total sales growth in our North America segment to be 3 to 5% with comparable sales growth of 1.5 to 3.5%.

Our total sales growth in North America in 2026 benefits from our Benson acquisition in Canada, which closed in the fourth quarter of 2025. For international automotive, we expect total sales growth of 3 to 6% and comparable sales growth of 1.5 to 3.5%. For the industrial segment, we expect total sales growth of 3 to 6% with comparable sales growth in the 3 to 6% range. For gross margin, we expect 40 to 60 basis points of full year adjusted gross margin expansion driven by our continued focus on our strategic sourcing and pricing initiatives. Our outlook assumes that adjusted SGA will deleverage between 30 and 50 basis points for the year.

Despite the restructuring actions we’ve taken over the past two years to reduce our cost structure, our SGA outlook is driven by persistent cost inflation. We expect ongoing cost inflation in salaries and wages driven primarily by mandatory pay increases in international jurisdictions and continued headwinds from inflation and US Health care costs which are growing at a high single digit rate as we begin 2026 and as will shared in his remarks, we are continuing key transformation programs globally, including in our U.S. nAPA business, that further strengthen our businesses moving forward. In addition, given the persistent cost inflation headwinds, we’re taking further actions to adjust our cost structure to market conditions.

We expect expenses associated with transformation activities and cost actions to be in a range of $225 million to $250 million with an anticipated benefit in 2026 of 100 to $125 million. These expenses do not include any cost associated with the separation of the businesses. We expect consolidated adjusted EBITDA in 2026 to be in a range of 2 billion to $2.2 billion, an increase of 2 to 9% compared to prior year. In our North America automotive segment, we expect segment EBITDA of 700 million to 730 million, an increase of 5 to 9% versus last year. For international automotive, we expect segment EBITDA of 560 million to 600 million or an increase of 4 to 10% compared to last year.

And finally for global industrial we expect segment EBITDA of 1.2 to 1.3 billion, an increase of 7 to 12% versus last year. For corporate, we expect expenses to be in a range of 1.5 to 2% of total sales. Two additional areas to highlight for 2026 we expect depreciation and amortization expense to be in a range of 515 to $540 million as continued growth investments in technology and supply chain drive the year over year increases. Of note, our investments in technology generally have shorter useful lives, typically ranging from three to five years. For interest expense, we currently expect to be in a range of $180 million to $190 million as we expect debt levels to remain consistent with 2025 but anticipate higher borrowing costs in 2026.

With those details, I’d like to share some thoughts on the start of 2026 as we consider the range of outcomes for the year. Our opportunities to achieve the high end of our expectations center on improving market conditions in Europe and sustained PMI readings above 50, driving a tailwind in our industrial business. Conversely, should market conditions deteriorate further in Europe or we experience downside variability in sales to our independent owners, we would expect to be in the lower end of our range. Near term market conditions remain mixed with an improved PMI reading in January but continued soft market conditions in Europe.

Our sales in January on an average selling day basis were strong, highlighted by strength at motion. Europe remains a watch point and we do not expect an improvement in market conditions in Europe through the first quarter from those that we experienced as we closed out the year. With the backdrop of an improved PMI reading in January, we are encouraged by the start of 2026 but are remaining prudent in our outlook. Turning to a few other items of interest, we expect to generate cash from operations in a range of $1 billion to $1.2 billion for the year, up approximately 20% from 2025.

At the midpoint of the range, inclusive of the cost of transformation and other actions that I shared for CapEx, we expect approximately 450 to 500 million or approximately 2% of revenue in 2026 at the high end of the range, in line with our 2025 levels. As we look at M and A, our global pipeline remains robust and we will continue to remain disciplined pursuing opportunities that create value. We expect our MA capital deployment to be consistent with 2025 and in a range of $300 million to $350 million. The fourth quarter required us to navigate many areas including unexpected sales headwinds, the bankruptcy of First Brands Group and transition of our supply chain to new suppliers and the one time adjustments I outlined.

However, we maintained tight control on our expenses and drove continued expansion in gross margin themes we will carry into 2026 alongside solid industry fundamentals as we turn to 2026. We are excited to begin a new chapter in our history with the announcement this morning of our plan to create two industry leading public companies. Our strategic initiatives, investments in supply chain and technology and efforts to drive productivity over the past few years have positioned both businesses for long term success. We are encouraged by the initial positive indicators to start 2026 but will remain prudent on our views on the full year outlook given the early stages of the year.

Thank you and I will now turn the call back to the operator for your questions.

Question & Answers

Operator

Thank you sir. Ladies and gentlemen, if you do have any questions at this time, please press STAR followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by two. And if you’re using your speakerphone, you will need to lift the handset first before pressing any keys. And to date, out of consideration to other callers on the line, as well as time allotted, we ask that you please limit yourself to one question and one follow up.

Thank you. Your first question will be from Scott Ciccarelli at Tourist. Please go ahead, Scott.

Scott Ciccarelli

Good morning everyone. Scott Ciccarelli, I think separating the businesses is a good idea, but with that on the table, can you help us better understand the margin pressures on the North American auto business? A 14% EBITDA decline against pretty solid performance in the prior year and a 5.5% margin just seems quite a bit lower than what we would have anticipated. And then related part two with the improved disclosure, can you give us an idea of how much the earnings contribution in North America is coming from your company owned stores versus how much from the independents? Thanks.

Bert Nappier — Executive Vice President and Chief Financial Officer

Thanks Scott. Good morning. I’ll start out on the EBITDA margin for North America and maybe take it up just a little bit. I think when we think about the fourth quarter at a consolidated level and we think about what happened during the quarter, we talked a little bit in my prepared remarks about our expectations coming in short, both in Europe and with independent owners, we also had profit growth. We also had sales growth that came from FX in the quarter and there’s very little profit benefit on that as well. So when we look at the movement through the P and L, I think we did a nice job on controlling costs.

Despite some inflation in wages, core cost growth in the quarter was 1.7%, which excludes acquisitions and FX. So I think the benefits of a restructuring program have performed nicely. And in looking at the core, we’ve really tried to control it pretty well. That left us with an EBITDA level that wasn’t enough to offset some of those headwinds we talked about at the beginning of the year. And then it persisted through the course of the year with depreciation, pension and interest expense. When I look at North America Auto or the North American business more specifically, I think the themes are similar to the ones I talked about in my prepared remarks.

We had wage pressure with cost inflation. US healthcare has been a particular challenge here in the fourth quarter. For the full year it was up $32 million, about $20 million more than our expectations for the full year. And that particular cost is growing at a very high clip, I would say high single digits for the full year beyond that we had some rent and freight pressure in the North American business in the fourth quarter from cost inflation and on it, a disproportionate level of our IT investments are happening in the North America business and that’s challenging SGA because as you know, those investments as we modernize and move to cloud based technology, move through SGNA.

Scott Ciccarelli

And then. Okay, thank you for that. And can you give us an idea about the earnings contribution? Company owned versus independents. Obviously the independents have been under pressure for a while.

Bert Nappier — Executive Vice President and Chief Financial Officer

Yeah, Scott, that’s probably something. We’ll get into more detail when we have an investor day for Global Automotive. As you know, the stores are split 65, 35 now. Sales is probably more 50, 50, but we’d say that, you know, both are contributing to our profit and we’ll get into a little bit more color on the model, I think as we look ahead and move to an investor day.

Will Stengel — President and CEO

Scott, I would just add one other thing in terms of kind of operationally the improvements that we’re making with our company owned stores. There’s been a lot of good work through the year. We made some organization structure changes to make sure that we had the right resources and leadership over top of our company owned stores, both at an executive level and in the field. And that’s really all around driving discipline and standardized processes and all the things that we need to do at a very basic and fundamental level each and every day to take care of our customers.

So whether it’s pricing strategies, inventory strategies, payroll mix, we’ve made a lot of really nice progress. I think our payroll percentage in our company owned stores was as good as it’s ever been in the fourth quarter. So a lot to like as we go through the transformation around all things company owned stores and then working with these owners to get everybody in a better spot competing in the market.

Scott Ciccarelli

Okay, thanks guys.

Operator

Next question will be from Greg Melick at Evercore. Please go ahead. Greg.

Greg Melick

Hi. Thanks. My first question was on the inflation trends in the quarter you mentioned. I think it was a little over 4% in industrial and a little over 3 in auto. Could you give us an update on what you expect in your guidance for this year for those two numbers?

Bert Nappier — Executive Vice President and Chief Financial Officer

Yeah. So Greg, I think for inflation for the full year, which includes tariffs, we said 2%. As we look across the balance of the entirety of the year, you’ll remember that the lapping of benefits will come, you know, as we get through the first half. So I would expect pricing benefits to get a little bit more compressed in the second half. About A point of the 2% we’re expecting for the full year comes from tariff. When we look out across the full year. I think as I look at the two individual businesses, we’ll just keep it kind of where we’ve kept it, which is at the 2% low single digit.

I don’t think they’re really disproportionately weighted between the North American industrial business and the Napa business. So I don’t know that there’s a distinction to make between the two. I think the 2% holds for the full year for both and about a half a point or, I’m sorry, about half of that comes from tariff as we look across the full year.

Will Stengel — President and CEO

Greg, I might just also comment that, you know, the tariff anomalies in terms of interacting with our suppliers have all largely moderated. So we’re back into a more ordinary course commercial discussion with suppliers about how to think about standard price increases as we go through a new calendar year. And in some instances, given all of the activity that happened in 2025, those discussions are non controversial and in some cases not even happening given all the stuff that happened in 2025. So. So I think we’re coming on the backside of all things tariff inflation and we’re back to a more standard structured inflationary environment from a price standpoint.

Greg Melick

Thanks. And my follow up is on the separation of the businesses. Given that you just had or announced the 70th year of a dividend increase, you talked about investment grade capital structure for both businesses. How are you thinking about the dividend? Either having one or bringing a keeping a growth rate given the history of genuine parts of that. Thanks.

Bert Nappier — Executive Vice President and Chief Financial Officer

Yeah, Greg, thanks for the question. I think there’s a lot more to come on the capital structure of the two businesses and the capital allocation policies and you know, we’re working on refining those details internally and we’ll get that to you guys in due course. I think we’ll stay focused on one capital structure side as Will mentioned in his remarks, making sure that we have strong balance sheets for both businesses and that we maintain investment grade rating on both. When we think about capital allocation, it’ll start with the business strategies of each individual business and where we think we need to invest and at the same time being very balanced on shareholder returns and making sure we’re thoughtful about how to do that and the right strategies for those two things that attract the right investor basis based on the business strategy.

So it’ll be an important conversation as we go forward. I think there’s no change to the GPC dividend policy for this year in 2026. We announced a 3.2% increase this morning. That’s in line with last year and I think it’s the right decision for the business as we go through this transition.

Greg Melick

Thanks and good luck.

Bert Nappier — Executive Vice President and Chief Financial Officer

Thanks, Greg.

Operator

Next question will be from Brett Jordan at Jefferies. Please go ahead, Brett.

Brett Jordan

Hey, good morning guys. Hey Brett. Brett, on that capital allocation comment, if you look at the two sides of the business, do you see one of them sort of needing more ca? I mean it does seem like the Motion business might be a bit more modern given more significant recent M and A there. Is there a big difference in capital allocation between the two?

Bert Nappier — Executive Vice President and Chief Financial Officer

I think they have different priorities, Brett. I don’t know that they have different overall investment needs. I think as you point out, Motion business is inherently capital light and I think Motion has really invested in the business smartly. And as Will mentioned in his prepared remarks, I think Motion’s position to continue to grow through bolt on and strategic acquisitions. When you think about the global Automotive business, we’ll continue to do bolt on M and A there looking ahead. But I also think that we have interesting and exciting and compelling investment opportunities on the capital side that provide medium term margin expansion.

Some of those we’ve been making. As you guys know, we’ve put $3 billion of capital into the business over the last five years and put it to work. And that’s why we’re so excited about the opportunities that we have ahead with the separation because we think that business, don’t forget global automotive will be a $16 billion top line business with $1.3 billion of EBITDA at the midpoint to the ranges we gave you for the year. So we’re excited about what that business can do and I think its investment might tilt a little bit more towards CAPEX versus M&A.

But I don’t want to prejudge the capital allocation policy for either company. But hopefully as we look ahead that will give you a little color I guess.

Brett Jordan

Then quick follow up European regional performance. I mean it sounds like it’s all weak, but is there anything to speak of around performance dispersion?

Will Stengel — President and CEO

Yeah, I would say it was certainly weak relative to our expectations. As we’ve commented, you know, particular weakness in UK and France and Germany, which are big three markets. Interestingly, you know, one of our steady performers in our Benelux business, it’s a small business for us but but it actually sequentially weakens through the year as well. A bright spot for us Is the great work happening in Spain and Portugal, which has been a really nice case study for how we bring the Napa brand to a new geography. In Europe, we’ve essentially doubled that business. We’ve essentially doubled the EBITDA rate of that business. And the Napa brand is really carrying the day to, even in a tough market, win share, so.

So generally weak across the board. But as Bert said in his prepared remarks, we’ve put a lot of capital into Europe. We’ve got really nice supply chain investments in the uk, really nice supply chain investments in France, supply chain investments in Germany and Spain. So as that market recovers, we’re going to have a very differentiated platform relative to the balance of the market market. And it’s a great operating team with a lot of focus and a lot of urgency to make hard calls in a tough market. So we feel good about the future. We’re just working through a soft moment in time.

Bert Nappier — Executive Vice President and Chief Financial Officer

And Brett, I just add to that that I think, I think for the region for the fourth quarter, you know, our performance was right in line. Everybody had a bit tougher experience. And I think if you look at the balance of 2025, I’d say that our European business performed in line or better than the region for the full year.

Brett Jordan

Great. Thank you. Appreciate it.

Will Stengel — President and CEO

Thanks, Brooke.

Operator

Next question will be from Chris Horvors at JPMorgan. Please go ahead, Chris.

Chris Horvors

Thanks. Good morning, guys and congratulations on the announcement. In the new reporting framework, you’re breaking out Napa between North America and international. As you’ve gone through this process and just the broader separation announcement, how are you thinking about the synergies of operating a global automotive business? Obviously there’s the Napa brand and the sourcing, but is there something to having sort of a dedicated North American company and a dedicated European, Australia, Asia business?

Will Stengel — President and CEO

Chris, I would say it’s incrementally easier. To extract a global harmonization with just an automotive platform versus auto and industrial. Part of that logic was, as we thought strategically about what we call one gpc. You know, we’ve made a lot of progress on that front. But for a combined entity to take that next phase of what does one GPC mean and how do you extract value? It gets complex across both an industrial and automotive platform. And I would say it gets incrementally less complex for a standalone automotive business. Having said that, I do think we’ve come to really appreciate the importance of having specialized expertise down at the geographic level, meaning Asia PAC needs to be close to those customers and make the Right.

Customer level decisions. Europe has customer specific decisions to make. And so we will continue even in the global automotive platform to pursue, pursue, quote unquote1 GPC synergies. But we’ve made good progress and it’s probably not the value driver as we think about the value, the multiple expansion and the margin expansion as we move forward.

Chris Horvors

And then following up on Brett’s question, can you break out for us sort of your expected Capex in DNA between Motion and the automotive business as you’re planning 2026? What’s the split there?

Bert Nappier — Executive Vice President and Chief Financial Officer

Yeah, Brad, we don’t. I’m sorry Chris, we don’t really get into that kind of level of detail. I would just say that when we think about Capex, we think about it more from an activity perspective. So as I look at the year, about 50% of the upcoming investment for 2026 will be in it with about another 30 to 35% in what we would call supply chain modernization and that might be building and DCs and things like that. I would say that in general though, because Motion is a relatively capital light business, the orientation, if you want to think about it, from the two business units would weight more towards the global automotive business.

Will Stengel — President and CEO

Hey Chris, I also just wanted to follow up on another thought that I had as it relates to North America. As you know we put Elaine Moss in a leadership role running both our Canadian and our U.S. business. And I would say in that situation we’re excited about the opportunities to continue to extract value from working more closely together as a North American platform. So in that geography I think we’ve got intra geography opportunity. But my comments I think still hold for the cross global opportunities. Those are a little bit harder to get and will take some time.

Bert Nappier — Executive Vice President and Chief Financial Officer

Thank you.

Operator

Next question will be from Michael Lasser at ubs. Please go ahead. Michael, good morning.

Michael Lasser

Thank you so much for taking my question. If we look at the North American auto business, it does appear that market share took a step back in the fourth quarter, perhaps largely related to the independent business. So A, why was that the case? And B, if we look at your guidance, it does indicate that you expect that business to accelerate in 2026. Would that be predicated on an improvement in the independent business and what would be responsible for that? Thank you.

Bert Nappier — Executive Vice President and Chief Financial Officer

Hey Michael, I’ll take that one. I think you know, when you look at the performance of the business in the fourth quarter, I’d start with the strength of the company owned stores in North America and in particular at N Napa, 4% comp sales. I Think they’re performing nicely. Sequential improvement and we continue to control the things that we can control. As I mentioned with the independent owners in my prepared remarks, we had a quarter Q3 in which we had built some nice momentum sequential improvement for independent owner performance through the course of the year. And we flatly expected that to maintain in the fourth quarter, even with the promotional comp that I mentioned in my prepared remarks.

And unfortunately that wasn’t the case, as I shared, and they didn’t meet our expectations for what we thought for what would happen in Q4. The independent owners continue to be an important part of our model and I think they are just continuing to deal with the headwinds that we’re all dealing with, whether it’s cost inflation, persistent elevated interest rates, all the different dynamics we’ve, we’ve mentioned before as we look ahead to 2026. You know, as I mentioned in my prepared remarks, we’re being prudent and cautious. I would say that as we look into the early part of the year, we’re not expecting or anticipating any material improvement in performance there.

That’s not because we are doubting what they’re doing. It’s more about just being smart about the trajectory as we came out of the fourth quarter as we move through the balance of the year. Will mentioned this a few minutes ago. We’re going to continue to work very closely with them on positioning them for strength in the marketplace and making sure we’re staying balanced on investing with them, growing with them and pushing them forward. So look, we’ve done a lot of great work in this space. I think we’ll continue to see more benefits, but in the early part of the year, I think we’re being a bit prudent, not only of the performance of the independent owner, but also in Europe.

Michael Lasser

Okay. My follow up question is, as you look forward to the separation, you provided. Some helpful detail on the profitability of. The North American auto business versus the international auto business. Do you think it would be prudent? And I’m recognizing that it’s still very early and you’re likely to give some information over time. But just conceptually, do you think it would be prudent to take down the profitability of the North American auto business as a manner in which to stabilize or maybe improve the overall market share of that segment?

Will Stengel — President and CEO

Michael, if I’m following your question, I don’t think that’s necessary for us to. Take down the margin profile of the North American business to compete more effectively. I think we feel really good about the work that’s been done and that’s planned to be done as we move forward. And that should position that business to be a very enticing and compelling value creation story. And part of our assessment and the work that we did in 2025 was to get very granular and tactical on what are the initiatives and what is the pathway to creating and earning our entitlement in North America Automotive. And we’re looking forward to sharing all of that great work at an investor day to get everybody really excited, as excited as we are about the potential of that business.

Michael Lasser

Thank you very much and good luck.

Will Stengel — President and CEO

Thanks, Michael.

Operator

Next question will be from Chris Denkert at Loop Capital Markets. Please go ahead. Chris.

Chris Denkert

Hey, morning. Thanks for squeezing me in here again. First off, just congrats on the announcement. Very exciting times. I guess just to move more operationally here, the streamlining you guys called out, I think 100 to 125 million of kind of restructuring benefit for the year. Can you break out what the mix is of the attribution? I assume most is automotive, but any color, that’d be helpful.

Bert Nappier — Executive Vice President and Chief Financial Officer

Yeah, Chris, actually it’s pretty split between both businesses. Both have really compelling opportunities on the transformation side as we look ahead. So I would say if you’re thinking about the benefit that we’ll see in the year one, the benefit will move through the P and L, partly through gross margin and partly through productivity and sga. So it’s not all cost play. And as we think about it, we’re getting more and more weighted towards transformation activities, I think, which are the more exciting and the more compelling things that are going to drive opportunities in the medium term.

We’ll still do some restructuring through the course of the year. We’ll have some things that we focus on in terms of facilities and store optimization, branch optimization, DC optimization. But the transformation initiatives again are thematically aligned to where we’ve talked about investing. We’ve got great opportunities in the Napa supply chain. We’re working really hard on sales effectiveness both at Napa and the industrial business. And that gets back to Will’s comments on partnership with independent owners. We think we can make some really nice moves with sales effectiveness not only in company owned stores at Napa, but also with independent owners.

And those are going to be compelling. And then Motion’s doing great work on just doubling down on how great they already are. And when you look past that, we’ve got some opportunities in the commercial space at Motion. I think we’ll be smarter and much sharper on pricing tools and capabilities that are going to be in this set of transformation initiatives. And then finally we have great opportunities in technology. What Naveen’s doing with the team around the world to drive productivity both in terms of back office store, technology catalog and search, but also inside of a facility are really compelling.

So we’re excited about the future. I think the benefits come through multiple prisms and split between the two business units and set us up for even further success as we move into 2027 and beyond.

Chris Denkert

That’s good stuff. Look forward to hearing more detail about that at the analyst day for sure. And I guess just a quick follow up on the guidance. Just you mentioned the real the baseline assumption is pretty flattish market growth any shape to the year there. Is the assumption negative first half, slight positive back half, or just pretty ratable?

Bert Nappier — Executive Vice President and Chief Financial Officer

Yeah, no, I think it’s a great question and it’s a good chance to give you a little color on the shape of the year. I think we’ll expect earnings growth to accelerate sequentially as we move through the quarters. The first quarter first half will be a bit more muted. I’ve mentioned a few times European market conditions and I think we’re being prudent on very modest expectations for the independent owners given the exit levels on on both areas as we came out of 2025 flat market growth throughout the year. We’re not planning for an acceleration in market conditions throughout 2026, even though we’ve had a little positive reading here in January on pmi.

We started the year last year with two positive readings. And so I think we’re just being smart about lessons learned there and we’ll be watching gross margin rate very closely. It’s an important part of our profit profile. And so, you know, we’re moving through a year in which we’re lapping tariff benefits and normalization of the tariff landscape. And so we’ll be watching that closely. The interest expense headwind I mentioned for 2026 is weighted more in the first half of the year and so we’ll be thinking about that as well as we shape out the year.

But having said all that, we’re very confident in our full year guidance and we’re focused on driving benefits and additional benefits wherever we can.

Chris Denkert

Thanks so much for the call there and best of luck, guys.

Will Stengel — President and CEO

Yeah, thanks, Chris.

Operator

Ladies and gentlemen, we have time for one more question and our last question will be from Kate McShane at Goldman Sachs. Please go ahead. Kate.

Kate McShane

Hi, good morning. Thanks for taking our question. It’s just kind of a housekeeping question at the end of this call, but just with regards to growth and failure, maintenance and discretionary. I know you gave numbers for the year, but we just wondered if you could talk to how it performed, how each category performed in Q4 and what your expectation is, if any. If there was deferral in the back half of the year, what that looks like into 2016.

Bert Nappier — Executive Vice President and Chief Financial Officer

Say the last part again, Kate, you cut out just a little bit on our.

Kate McShane

Sorry, sorry. Just about any kind of deferral that you may have seen towards the end of 25, if 26, and when it would be in 26, you could make up some of that deferral.

Will Stengel — President and CEO

Yeah, Kate. So on. Yeah. In terms of non discretionary repair, that was college call it mid single digits. For the fourth quarter. So that that’s been pretty consistently improving as we’ve gone through the year. I would say the same for maintenance and service. And actually in the fourth quarter, the discretionary part of the business was also kind of mid single digits as well. So for the full year you had non discretionary repair, a mid singles maintenance and service kind of going from low to mid singles and then discretionary going from flat to slightly up as we look at the math for the full year. So I think that those trends probably continue to improve as we go through into 2026.

I would tell you customers are still looking for value. As we look at all of our assortment strategies and where we’re seeing good traction, there’s obviously people emphasizing our value lines and some of the assortment that we have below the better invest line. So I think all those trends will continue into 2026 that line up with this concept that Bert’s talking about, which is kind of a flattish volume market slightly down with some price benefit to be kind of neutral overall for the market in 2026.

Operator

Thank you. Thank you. This does conclude today’s Q and A. I would now like to turn the call back over to Will Stengel, CEO. Please go ahead.

Will Stengel — President and CEO

Thank you everybody for joining us today. We look forward to updating you on. The transaction and our progress as we move through the quarter on the April earnings call. Thanks again for being with us and thanks for your support.

Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.