Good day, ladies and gentlemen. Welcome to the Genuine Parts Company, Third Quarter 2021 earnings conference call. This call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Sid Jones, Senior Vice President Investor Relations. Please go ahead, sir..

Good morning. And thank you for joining us today for the Genuine Parts Company, Third Quarter of 2021 Earnings Conference Call. With me today are Paul Donahue, our Chairman and Chief Executive Officer, Will Stengel, our President, and Carol Yancey, our Executive Vice President and Chief Financial Officer.

As a reminder, today's conference call and webcast include a slide presentation that can be found on the Genuine Parts Company Investor Relations website.

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 release, issued this morning, which is also posted in the Investors section of our website. Today's call may also involve forward-looking statements regarding the Company and its businesses.

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.

Now, I will turn it over to Paul for his remarks..

The ongoing reopening of the economy, and improving miles-driven which generate the need for more repairs and more maintenance. A robust used car market, that is keeping more cars on the road longer. And improving the aftermarket fundamentals, such as the growing and aging vehicle fleet, which will continue to benefit the industry over the long term.

Looking next at our automotive highlights by region, total U.S. sales were up 9%. Comp sales increased 8% from last year and are up 5% on a 2 year stack. In Canada, total sales were up 1% with comp sales essentially flat both year-over-year and on a two-year stack as lockdowns in major markets have slowed the recovery.

it's been encouraging to see these restrictions of easing of late, which should lead to stronger demand through the final 3 months of 2021. Our U.S. sales were driven by strong demand for product categories such as exhaust, ride control, brakes, tools, and equipment which all outperformed.

In addition, both retail and commercial ticket and traffic counts were positive for the third consecutive quarter. By customer segment, sales to both commercial and retail customers held strong, with DIFM sales outperforming DIY for the second straight quarter.

We do remain pleased, however, with the continued strength of our DIY business and believe we can drive additional growth with ongoing initiatives, such as B2C digital investments. These include new search features, improving catalog functionality, and enhanced payment options, such as, buy now and pay later.

NAPA online, B2C sales continue to grow at a rapid pace, up over 40% from the third quarter, and up 2x from 2019. The strength in commercial sales in the quarter was driven by several of the initiatives mentioned earlier, as well as the ongoing economic recovery in the U.S..

Sales to our major account partners were strongest with mid-teen growth, followed by sales for our NAPA AutoCare customers, which were up low double digits. We would add that our NAPA AutoCare membership has surged with the reopening of markets and includes nearly 400 shop upgrades thus far in 2021.

So really terrific momentum for our premier independent garage program. Rounding out our commercial segments, fleet, and government and other wholesale customers, also posted high single-digit growth for the quarter. So really strong results across all of our commercial accounts.

These are encouraging trends and as we look ahead, we remain confident in our growth strategy and our key priorities to deliver customer value. and ultimately sell more parts for more cars. Our AAD team in Europe continue to perform well with total Q3 sales up 8%, were up a strong 23% on a two-year stack.

Comp sales increased 2.5% from last year and were up 14% on a 2-year stack. While the UK and Benelux continue to stand out with really strong results, we were pleased with the solid results in each of our 7 European markets. A reflection of stable market conditions and execution of our key sales initiatives.

These include the continued roll-out of the NAPA brand and ongoing emphasis on key account development, which are driving market share gains. Now looking at our Asia-Pac business, total sales were up 2% from 2020 and up 18% on a 2-year stack. Comp sales were up slightly from last year and up 15% on a 2-year stack.

With both commercial and retail sales up double-digit, driven by positive growth with both the Repco and NAPA brand. We're really pleased with these results given the severe lock downs and the major markets of Sydney, Melbourne, and Auckland during much of the quarter.

We're energized to see the reopening of these markets is finally getting underway, and we expect a surge in demand in the coming month. So now let's discuss the Global Industrial segment. Total sales for this segment were 1.6 billion, a strong 15% increase from last year, and a 5% increase from 2019. Comp sales were up 13% and up 4% on a 2-year stack.

Through the quarter, average daily sales in July and August were in line with the second quarter, while our strongest results were in the month of September. This quarter's positive momentum and industrial exceeded our expectations, which is a reflection of the great work by our motion team, and the strengthening of the industrial economy.

Both the PMI and industrial production were positive for the quarter and these indicators correlate closely to the overall healthy state of the industrial sales climate. For the second consecutive quarter, we had positive sales growth across each of our industries served.

The industry's sectors that stood out with double-digit growth include our largest customers segment, equipment and machinery, as well as iron and steel, automotive, aggregate and cement, lumber and wood, fabricated metals, equipment rental, and oil and gas.

In addition, our newly added fulfillment and logistics industry experienced tremendous growth. So as you can see, the current growth in our industrial business is quite broad across the markets we serve.

As we have conveyed in our prior calls and in our industrial Deep Dive event on September 15, our Motion business is a market leader in the industrial distribution space in North America and Australasia. DMI team strive to be the preferred industrial solutions provider in the industries we serve.

We partner with the best manufacturers in the industry to provide Tier 1 brand, our customers demand. In addition, we are constantly broadening our product offering, as well as our service capabilities to maximize our sales potential and drive market share gains in a very large and fragmented market.

With these fundamentals of our business in mind, our focus on continued profitable growth in this segment remained grounded in 5 key initiatives. An omni -channel build-out to accelerate e-commerce growth and drive sales with new customers.

As examples, Motion.com and our inside sales center, which has grown from 15 to now, 35 reps in just 6 months continue to drive incremental sales from new motion customers. The expansion of our industrial services and value-add solutions in areas such as equipment repair, conveyance, and automation.

Strategic M&A to generate significant growth in new markets and new products, and services as an industry consolidator. Enhanced strategy to create a dynamic pricing environment that provides us a competitive advantage in the marketplace. And lastly, network optimization and automation to further improve our operating efficiencies and productivity.

We're pleased with the progress from these initiatives, thus far, and we are excited for the opportunities ahead. Another third quarter highlight, is the publication of our 2021 sustainability report update. Our initiatives and activities over the past year have lead to continued progress toward our goal of promoting diversity, equity, and inclusion.

We've also taken steps to reduce the environmental footprint of our operations by reducing energy and emissions while increasing recycling opportunities across the globe. 2020 tested all of us and accentuated the importance of supporting our people and our communities.

We're really proud of our GPC teammates around the world for their resilience and contributions to further in our sustainability goals. We invite you to learn more about these initiatives and our full report which you can find on the GPC website. So in summary, we made great progress in several important areas during the third quarter.

And we're very pleased with the strong result in our automotive and industrial businesses, and the continued improvement in our sales and operations. We could not be more proud of the GPC team. Now, I will turn the call over to Will.

Will?.

Thank you, Paul. Good morning, everyone. First, let me reiterate Paul's comments and acknowledge the continued strong team performance this quarter. It's always a proud moment to have the opportunity to showcase our global teams hard work, relentless customer service, and winning performance.

It's a challenging environment and teams have done an exceptional job to adjust and deliver results. We continue to remain focused on our key pillars, including talent, sales effectiveness, digital supply chain, and emerging technology. Teams are executing initiatives well and consider s strategic initiatives a central part of our operating cadence.

The teams have rigor around measurement and progress visibility. We measure unique global initiatives and are ahead of our 2021 plan established at the beginning of the year. As we execute our GPC strategic planning process for the upcoming year, we reflect on learn from and refine our priority initiative execution.

In addition through the year, we share best practices around the globe for common strategies to help us continuously learn and improve as one GPC team.

While our geographies and end markets are diverse, we share similar GPC global initiatives, all designed to deliver profitable growth in excess of market growth, operating leverage, and free cash flow.

Despite a challenging environment, we're pleased to see more normal team activities and customer activities starting to be possible in most of our geographies. We recently had the opportunity to meet in person with the U.S. Automotive Executive and Field Management team in Atlanta.

We listened to field feedback, shared performance trends, enjoyed team camaraderie, introduced new talent, and collaborated on strategic priorities for the upcoming year.

Similarly, approximately 70 of our motion Executive and field leaders from around the country, recently had the chance to meet in person for the first time since early 2020, to detail business performance and review strategic initiatives priorities.

In Europe, our AAG executive leadership team recently met together in person for the first time in nearly 2 years. Our Atlanta-based GPC and U.S. NAPA field support teams also hosted an employee appreciation event for 400 teammates, that included a well-received visit from our celebrity NAPA racing teammates, including Chase Elliott.

We're cautiously optimistic our teams in Australasia will soon be able to exit lockdown in November and also return to a more normal in-person routine. At each of these events, it's energizing to see the positive attitudes, strong team alignment, and visible excitement about our GPC momentum and vision.

It's also reassuring to see our differentiated GPC culture up close and intact. Paul and I have also had the opportunity to spend time in person with customers and vendors this quarter. These discussions are critically important as we share our growth visions, listen to feedback, and explore ways to deepen our strategic partnership.

These conversations not only reinforce our GPC core strategic priorities, talent, sales effectiveness, digital and tech, supply chain and emerging tech; b but also always affirm the unique customer value propositions across our GPC businesses.

Growth, technology solutions, supply chain excellence, products and technical expertise, and long-standing local relationships are always key themes. As an example, we recently visited with an industrial customer who is enjoying exponential growth.

Our Motion teammates co-locate associates at the customer facility to provide real-time expertise on the plant floor to ensure the facility is operating to its potential. Part of the discussions with this customer explored the use of embedded technology solutions that will make customer ordering from motion easier and faster.

We're building plans to triple the size of this customer relationship over the next few years. In our customer discussions or recent common theme is the supply chain challenges that face all Company.

We explained, we believe our global scale in-country resources, data and analytics, investments in our supply chain, strategic inventory actions, and proactive daily team approach, position as to navigate the headwinds relative to others.

We're in constant discussion with highest levels of our supplier partners, many of which for whom GPC represents a large and important global customer. Over the past quarter, we've held numerous top-to-top meetings with our global executive leadership and vendor partners to review progress and jointly problems solved.

It's a challenging environment, but our global teams and partners are proactively acting each day to navigate it. Turning to our focus on talent, we recently completed an end-to-end strategic review of our global GPC employee value proposition, and talent initiatives.

This disciplined work ensures we have the right capabilities aligned to our current and future business strategies. The work also ensures we're constantly striving to be an employer of choice in this dynamic and competitive talent environment.

Around the globe, we continue to take deliberate actions to lead, recognize and ensure the well-being of our teams.

For example, we recently streamlined recruiting processes to move faster to attract talent, introduce new wellness incentives, improved holiday schedules, enhance vacation eligibility and flexibility, invested in healthcare costs to reduce the burden on our associates, improve tuition reimbursement programs, and relaxed dress code policies to name a few.

And talent's our most important advantage, we'll always work to take care of and invest in our people. We also continued to execute well against our broader digital and technology initiatives. During the quarter, the teams have made exciting progress under leadership of our new Chief Information and Digital Officer, Naveen Krishna.

We're focused on building high performing teams that engineered technology to solve customers problems at scale. In addition, we'll optimize human and financial resources to focus on the most critical and impactful activities. Our emerging technology initiatives, including electric vehicles and related technologies also continue to advance.

The global teams are partnering well to execute a disciplined and coordinated strategy. We're pleased with the team momentum and will continue to dedicate resources to this exciting effort. Last, the teams are executing our M&A strategy with discipline.

For example, we added several store groups to our North American and Europe an automotive network to increase local market density and we announced the acquisition of J&S Automotive Distributors, a leading automotive parts distributor in Ireland. This new geography represents the 15th country in which GPC operates.

In addition, we were pleased to recently sign a definitive agreement to acquire AutoAccessoriesGarage, a leading U.S. based digital platform specializing in automotive accessories. This strategic digital acquisition adds new capabilities and accelerates a strategic product category for the U.S. automotive team.

The acquisition pipeline is active and we remain disciplined to prioritize transactions we believe meet all of our GPC strategic and financial criterion. We are thrilled to welcome our newest teammate to the global GPC family. Overall, we are really pleased with the record -setting team performance.

Despite uncontrollable headwind, the teams continue to rally together each day to service customers and deliver performance. We look forward to working hard to close the year strong and build on our solid momentum as we move forward into 2022. With that, I will now turn the call over to Carol to review the financial details..

Thank you. Will, and thanks to everyone for joining us today. We are very pleased with our third quarter financial performance and we look forward to sharing a few additional details with you. Recapping revenues, total GPC sales were 4.8 billion in the third quarter, up 10%.

Gross margin improved to 35.5%, an increase of 50 basis points from 35.0%, last year. Our improvement in gross margin was primarily driven by the increase in supplier incentives due to improved volumes and the positive impact of strategic category management initiatives.

In the third quarter, we had continued pricing activity with our suppliers as anticipated, resulting in additional product cost inflation. Our team was positioned to address these increases with effective pricing and global sourcing strategies and price inflation improve neutral to gross margin.

On a total Company basis, we estimate a 3% inflationary impact on Q3 sales, consisting of 3.5% inflation in global automotive, and 1% to 2% in industrial. Based on current trends, we expect to see additional price inflation in the fourth quarter, and we will utilize our strategies to protect our gross margin as appropriate.

Our total adjusted operating and non-operating expenses were 1.35 billion in the third quarter, up 11% from 2020 and at 28% of sales. The increase from last year is due to several factors, including the prior-year benefit of approximately 60 million and temporary savings related to the pandemic.

Additionally, our third quarter expenses reflect the increase in variable costs on the 450 million in additional year-over-year sales, as well as cost pressures in areas such as wages, Incentive compensation flight, rent, and health insurance. We continue to execute on our ongoing initiatives to control expenses and improve our operations.

While pleased with our progress, thus far, we see room for further improvement in the quarters ahead. Our total segment profit in the third quarter was 447 million up 14%. Our segment profit margin was 9.3% compared to 9.0% last year, a 30 basis point year-over-year improvement, and up a 130 basis points from 2019.

So we're really pleased with the continued improvement and the excellent work by our team. Looking ahead, we raised our margin expectations for the full year and we currently expect segment profit margin to improve 40 to 50 basis points from 2020 or 80 to 90 basis points from 2019. This would be our strongest full year margin in more than 20 years.

Our tax rate for the third quarter was 24.9% on an adjusted basis, up from 23.4% last year, with the increase in rate primarily related to income mix shift to higher tax jurisdictions. Our third quarter net income from continuing operations was 229 million, with diluted earnings per share of a $1.59.

Our adjusted net income was 270 million or a $1.88 per diluted share, which compares to 237 million or a $1.63 per adjusted diluted share in the prior year, a 15% increase. So turning to our third quarter results by segment, our total automotive revenue was 3.2 billion up 8% from last year.

Our segment profit increased 6% to 281 million with profit margin as solid 8.8%. While down 20 basis points from 2020 due to the prior-year benefit of temporary savings, this represents an 80 basis point margin improvement over 2019 and reflects the underlying progress in our operations.

For the 9 months profit margin is 8.6% up 80 basis points from 2020 and up 90 basis points from 2019, driven primarily by margin expansion in our U.S. and European operations. Our industrial sales were 1.6 billion up 15% from 2020. Segment profit of a 166 million was up a strong 32% from a year ago and profit margin improved to a 10.3%.

This is a 140 basis points from 2020 and up 220 basis points from 2019 and the first double-digit margin for industrial since the Fourth Quarter of 2006. Year-to-date profit margin for this segment is 9.4% up a 120 basis points from 2020 and up a 150 basis points from 2019.

So this group is executing very well and posting excellent operating results through the industrial recovery. So now, let's turn our comments to the balance sheet. At September 30th, total accounts receivable is down 3.5%, primarily due to the timing of the 300 million in accounts receivables sold in October of 2020.

Inventory was up 10% in line with our sales increase and a reflection of our commitment to having the right parts, in the right place, at the right time. Accounts payable increased 20% from last year due to the increase in inventory and favorable payment terms with certain suppliers. Our AP to inventory ratio improved to 129% from 118% last year.

Our total debt is 2.4 billion down 474 million or 16% from September of last year, and down 245 million from December 31 of 2020. We closed the third quarter with available liquidity of 2.4 billion and our total debt to adjusted EBITDA improved to 1.5 times from 2.2 times last year.

So our teams continue to do an outstanding job of optimizing our working capital and our capital structure. We also continue to generate strong cash flow with another 300 million in cash from operations in the third quarter and 1 billion for the 9 months. For the full year.

We expect our earnings growth and working capital to drive 1.2 billion to 1.4 billion in cash from operations. And free cash flow of 950 million to 1.15 billion. Our key priorities for cash remain the reinvestment in our businesses through capital expenditures, M&A, share repurchases and the dividend.

For the 9 months we have invested a 138 million in capital expenditures, and we have plans for additional investments to drive organic growth and improve efficiencies and productivity in our operations through the balance of the year. In addition, we have used approximately a 143 million in cash for strategic acquisitions to accelerate growth.

These investments includes several automotive store groups across our markets, included in the entry into Ireland discussed earlier. We continue to generate a robust pipeline of additional strategic and bolt-on acquisitions in both automotive and industrial segments.

This would include Auto Accessories Garage as mentioned before, which we expect to close in the fourth quarter. Consistent with our longstanding dividend policy, we have also paid a total cash dividend of more than 349 million to our shareholders through the 9 months.

The Company has paid a dividend every year since going public in 1948 and has increased the dividend for 65 consecutive years. And as part of our share repurchase program, we have also been active with share buybacks dating back to 1994.

In the third quarter, we used a $100 million to purchase 800,000 shares, and year-to-date we have used 284 million to purchase 2.2 million shares. The Company is currently authorized to repurchase up to 12.2 million additional shares, and we expect to remain active in this program in the quarters ahead.

So turning to our current outlook for 2021, we are raising our full-year guidance previously provided in our earnings release on July 22nd of 2021. We expect total sales for 2021 to be in the range of +12 to +13%, an increase from our previous guidance of +10 to +12%. As usual, this excludes the benefit of any unannounced future acquisitions.

By business, we are guiding to +14 to +15 total sales growth for the Automotive segment, an increase from +11 to +13% and a total sales increase of +10 to +11% for the industrial segment.

An increase + plus 6% to +8% On the earnings side, we're raising our guidance for adjusted diluted earnings per share to a range of $6.60 to $6.65, which is up 25% to 26% from 2020. This represents an increase from our previous guidance of $6.20 to $6.35.

So we're encouraged by the strength in our financial results for the third quarter and the nine months. And we enter the fourth quarter focused on our initiatives to meet or exceed our outlook for the year. We look forward to reporting on our financial performance for the fourth quarter in full year in February. Thank you.

And I'll now turn it back over to Paul..

Thank you, Carol. As we close out another strong quarter, we are pleased with our progress in driving profitable growth, strong cash flow, and shareholder We attribute the positive momentum in our business to our global team work and disciplined focus across all of our operations.

Our team has confidence in the strategic plans we have put in place to capture long-term growth and margin expansion. Our strategic plans combined with an exceptional balance sheet position GPC with the financial strength and flexibility to pursue strategic growth opportunities via investments at organic and acquisitive growth.

While also returning capital to shareholders through the dividend and share repurchases. So as we look ahead, we are encouraged to see the impact of the global pandemic subsiding. while the fundamentals of our two global businesses remained rock solid.

Our GPC teams around the world are stepping up under challenging circumstances and taking great care of our customers. That we thank you for your interest in GPC. and we thank each of our GPC teammates for their passion, their dedication, and their hard work. So with that, let me turn the call back to the operator for your questions..

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Chris Horvers of JP Morgan, please state your question..

Thanks. Good morning, everybody..

Good morning..

My first question is, you talked about September being the best average daily volume in the automotive business and obviously Motion has a very strong two-year acceleration.

So can you talk about the potential outcomes on the fourth quarter on the comps in both businesses and given that commentary, would you expect that the two-year trend could accelerate in the fourth quarter on comps?.

Well, Chris, first off, thanks for your question. You've hit it when you look across all of our businesses, the quarter the third quarter got stronger as we progressed with September being our strongest month. And what we can tell you is that the trends that we saw in September are carrying over into the month of October.

So we're feeling good about where we are. And we certainly feel really good about the projections that we put out there for Q4. So yeah, right now everything is looking pretty solid..

Excellent. And then, Carol, can you diagnose maybe the 50 basis points of gross margin expansion? Some of that -- it was vendor allowance -- some of those vendor allowance, some of those are vendor allowance, some are pricing.

How much of that is perhaps not sustainable on the vendor allowance side, and then how does that sort of parlay into your views about Motion's operating margin over time? Thank you..

I Know, look, we couldn't be more proud of the team and the work that was done in gross margin, I really want to give thanks to our procurement teams and all of our teams because there has been a ton of efforts related to gross margin.

So when we think about the inflationary impacts and having to deal with that, but honestly our initiatives, category management initiatives, global sourcing, pricing strategy.

It was vendor allowances, but quite honestly, in addition to that and especially when you look at the year-to-date numbers, it is the benefit -- the ongoing benefit of all our category management initiatives, which includes pricing and global sourcing. So I think in the quarter you did have more of an impact related to volume incentives.

But I think again, taking into account everything and inflation quite honestly was neutral to our rate. So as we look ahead, we're not concerned about gross margin in Q4.

And in fact, contemplated in our guidance and our outlook is that we would continue to have a positive impact in Q4, which would have us be positive for the year and then also extremely positive on a 2-year stack basis..

And then on the motion operating margin?.

Yeah. The motion operating margin, I think where you see them through the 9 months, which just, again, incredible operating performance for them. And it is both gross margin and expense leverage.

And they have really permanently lowered their cost structure, but I think we will see continued improvement in Q4, for the Industrial operating margin and that would give them, sort of an implied 80 to 90 BPS improvement for the full year, which is just outstanding, and again, much stronger than that on a two-year stack basis..

Got it. Thanks so much. And have a great fourth quarter..

Thanks, Chris..

Thank you..

Our next question is from Bret Jordan of Jefferies. Please state your question..

Hey, good morning, guys..

Morning..

Hi, Bret..

You commented about share gains in Automotive and, I guess, as it relates to the U.S-- are you seeing the share shift sort of smaller WDs giving up share or are there real shifts amongst the larger players in the space?.

I'll take a shot at that Bret, thanks to your question, it's -- look it's hard to say where we're gaining this year. I can tell you with some of the product category that we look at and the growth that we're seeing in Q3. And on top of a really solid Q2, we have to be up outpacing the general market.

But we're also the first one out, Bret, so we'll see what the numbers look like here going forward. Bottom line is, as we all know, the automotive aftermarket is incredibly fragmented. We like where we're at, we like the performance by our NAPA team and they had a terrific quarter and actually had terrific back-to-back quarters.

And as I mentioned in the initial question, we're out of the gates in great shape in the month of October, so we expect that to continue. And I would also comment Bret that, we feel the same way about our international automotive businesses in our European team as well as our Asia-Pac team continue to perform at a high level..

And I guess my follow-up question relates to the European team, I guess, what you are saying is you rolled out the NAPA private label program in Europe, is that gaining traction? And maybe you could give us a feeling for how the margin benefit of private label looks over there..

Yeah, I'll touch on the acceptance part, maybe Carol you weigh in on the margins. The acceptance Bret, I have to tell you is beyond our expectation, so much so that we are accelerating our -- the number of product lines. And we're accelerating the pace with which we're rolling those out.

So as you look across our European aftermarket business, we really started in the UK and our UK business continues to outperform. And now we've rolled that out into the other market. And I have to tell you it's really surpassed our expectation.

So really pleased and I would also say we are rolling it out in Australia and New Zealand as well with similar results..

Yeah. So on the margin standpoint, the product labels, specifically for Europe is neutral to their gross margin rate. Having said that it is favorable from a working capital standpoint, because many of the private label comes with extended terms. So the team has been able to see the benefit of that.

And in turn, they're taking their working capital improvements in reinvesting an additional product offerings and additional M&A such as [Indiscernible] that Paul and Will talked about earlier..

What do you say, as a percentage of your inventory mix being private label over there?.

We haven't really given that out yet. I mean, it's starting off slow with a number of product lines and we haven't given out a target. It's not going to be something. It's not ever going to be like what you see, certainly in the U.S. but going to a 10% and incremental improvement year-on-year out. I think you can expect that..

All right, thanks. if you, Brent, if you go back in time, Brent, when we first went into Europe back in 2017, there was very little, if any, private brands have sold through the AAG network. So everything that we're moving through right now and the NAPA brand is all incremental. And as Carol said, we're targeting 10%.

We think that's a good number, but we could certainly increase that in the years ahead as we expand into new product categories..

Great, thank you..

You're welcome..

Our next question is from Greg Melich of Evercore ISI. Please state your question..

Thanks. My first one was on inflation. The 3% that you saw in third quarter sales.

What should that accelerate to or doesn't need to accelerate into the fourth quarter to keep it neutral on a margin standpoint?.

Yes. We think that fourth quarter is probably in the 3 to 4% range. We would say that that would be 3 to 4% for our Global Automotive and 1 to 2% for industrial. It's slightly higher on the us automotive than it is on international automotive. Then Greg, having said that and again, I couldn't be more pleased with our teams.

They are doing a tremendous job and we do not think despite having incremental inflation coming in Q4, we're confident in our ability to manage through that and be able to continue to deliver gross margin improvements..

And has there been any shift in mix or any demand destruction.

This is accepted by the customer?.

Well, Greg. I guess just generally what we would say when you look at our top-line results and you look at the strong demand, whether it's industrial or automotive. I mean, at this point, we haven't seen the push back, and part of it is the nature of our business that is non-discretionary.

So we haven't seen necessarily the push back, pricing has stayed rational and inflations in all sectors, all industries. So really haven't seen that yet..

Got it. Make sense. And then the second was a little more strategic. Will, you talked about the M&A out there and some of the strategic things you've added. I know, historically, you guys have had a nice model paying 8 times EBITDA for things and getting some synergies and then rolling it in.

What's the current environment now in terms of just finding the right opportunities and paying what you are used to paying for acquisitions?.

Yeah. Greg. It's a good question. Thanks for it. It is certainly a dynamic M&A market. I think as we alluded to, we have a very disciplined approach to thinking about deals. Whether it's financially, operationally, strategically, etc. And for us, it's all about the value creation potential.

And I think on our Industrial Conference, I made a comment talking about creating value so that the eight or nine times becomes something lower than that. And so that's how we think about [Indiscernible]. What does this business look like? And how much value can we create when we bring it into the GPC family. Greg, I would also add on to that one.

When we look at our bolt-on acquisitions in the automotive space, whether it's in Europe or here across North America. Those continue to be very reasonable and rational, and are very close to our historic kind of valuations. But as Will said, we'll -- we will continue to be incredibly disciplined as we look at M&A here going forward..

That's a great summary. So thanks, congrats to you all and good luck..

Thanks..

Thank you Greg..

Thank you.

Our next question is from Daniel Imbro of Stephens..

Thanks for taking my question. This is Andrew on for Daniel. So on the industrial side of the business, September PMI stepped up a bit. It's a nice surprise.

How are you -- are you able to meet the demand in the market today? Have you had any issues with the risk?.

Our industrial business has held up -- well, you see the numbers Andrew that our industrial numbers are as strong as they've ever been. We had a terrific -- the team had a terrific Q3. We're not seeing that type of supply chain disruptions on the industrial side as we're seeing across the automotive -- North America automotive sector.

So they are in good shape, not to mention our industrial team going into 2021 did not trim back their inventories. They were in a good place, an inventory. And that is largely held up throughout the course of the year which has led to that great sales increase, they popped in Q3. So all is good on the industrial front..

Excellent. On the call through, you mentioned adding in some buy now pay later.

Is that something you are just rolling out on the DIY side or do you see an opportunity to maybe roll that out to the DIFM channel to help out with affordability on repairs?.

Yes, it's a great question. It's mostly on the DIY side and it's early days with the pilots that we're testing, but I'll tell you, is a good example of kind of understanding and listening to the customer, and then coming up with some solutions that meet these needs.

So it's early days, but online retail is probably the place where that's most relevant..

Perfect. Thanks. That's all from me..

Thank you..

Our next question is from Seth Basham of Wedbush Securities. Please state your question..

Thanks a lot. And good morning. My question is on the U.S.

Auto business and acceleration and growth that you saw in September, was that just a function of the comparison or is there something else that might have driven the acceleration in September and into October?.

Well, I would tell you, Seth, that I think it's a combination of factors. I think our U.S. automotive team continues to get their legs under them. The year, continues to get better as we go. I mentioned October is looking strong. It's looking strong across all regions of the country. It's looking strong in both DIY and DIFM.

And we don't -- we don't see it slowing. I would also comment that we had our best month, our best quarter with our big partners on the major accounts side, our AutoCare business continued strong and, Seth, our DIY business continues strong.

So it's really across the board, it's held up well and we're seeing that trend continue on the month of October as well..

Got it.

And just as a follow-up, when you think about new customer growth, have you seen an acceleration there or is it more about growing business with existing customers and the major accounts and NAPA AutoCare?.

It's really both Seth and I. And again, I would give our team high marks on the strategy they put together going into 2021, which was all around sales team effectiveness and putting more sales reps out on the street and getting them focused on the end-user customer.

And even when you look at our So kind of what we deem as our all other wholesale business, which is a significant chunk of business that was up high single-digits, year-over-year.

So I think a combination of growing business with existing customers, but also kind of restructuring our approach to the customers with our sales team and really driving a lot of new business as well. So very pleased with the NAPA team and where we find ourselves..

Great to hear. Thank you..

Thanks, Seth..

Our next question is from Liz Suzuki of Bank of America, please state your question..

Great. Thanks for fitting in my question. So Will had mentioned a number of enhancements to employee benefits with a focus on being a global employer of choice.

Can you quantify the cost of these initiatives? Or if you can't, explicitly break out how much you think SG&A would be impacted, do you think it's fair to say that growth in wages and benefits is likely to be elevated compared to historical growth rates for the foreseeable future?.

I guess I would comment and again, these are just great things they're really important to our teammates and they are important for the work force. And yet having said that, they don't come with significant costs. I mean, what we would point to that is just more relevant on the SG&A is just the true labor and wage inflation that we're seeing.

Part of it is making sure that you have competitive benefit programs and things like that, we've talked about healthcare and some of those things, paid time off vacation. But I think more important and more significant is just the true wage inflation that we're seeing.

Having said that though, we couldn't be more pleased with the team's hard work in really permanently reducing our cost structure and being able to offset a lot of that inflationary impact with some of our initiatives. So I would not say that you need a model anything in there for the incremental benefit of those types of programs.

And all that is contemplated in our full-year operating margin improvement that we've kind of models. So we feel good about it going forward..

Got it. Then on a follow-up to that, just given the increase in the guidance for the year, I'd imagine that the quarter came in ahead of your expectations and that there are some encouraging leading indicators that make you feel increasingly optimistic about the fourth quarter.

So I'm curious where the results have most surprised to the upside versus your prior estimates..

Yeah. I think look there weren't any major surprises. Our results were really due to the stronger sales and continued recovery in automotive and industrial. The 16th consecutive quarter of gross margin gains with a highly inflationary environment, but having cost controls to really drive improved margins was important.

We had terrific cash flow in the quarter, and again, with all the supply chain disruptions. So having that higher volume and really the industrial recovery has been coming quicker each quarter. So that went into our thinking as we look at the rest of the year, but we feel really good about Q4. But again, it's been a great team effort.

And I think as we've seen each quarter, recoveries and the reopening of economies and the fundamentals have gotten better each quarter..

Great, thanks very much..

Our last question comes from David Bellinger of Wolfe Research. Please state your question..

Hi, everyone. Thanks for taking the question. And very nice results today. To on -- the 350 basis points of inflationary benefits within Automotive, you're expecting a similar rate in Q4.

Are there any -- are the majority of those price increases fully rolled out at this point, or is there still some room to go into next year? Are you taking any pricing actions that are different from your competitors at this point?.

Yeah, look, I mean it's a very fluid environment with these price increases. I mean, as they're presented to us and again, the global sourcing and supply chain and procurement teams work very closely with the vendors and they look at timing and we look at areas that we can have time to work into those price increases.

We look at accelerating purchases. I mean, there's a lot of work that's being done and the timing of when they go to market is a factor in that as well. There will be some that carries over. Brenda next year, certainly, but it's a day-to-day, week-to-week negotiation right now.

It is more normal inflation and industrial, so keep that in mind, the 1 to 2% is just more normal inflation for them. It's really the us automotive that's got the heightened inflation. Again international automotive a little more normal. We will have some that goes into next year.

But again, teams are doing great job to work through that and have improvement..

Got it. And then I also want to ask buy now pay later feature.

Is there any way you could frame the potential size of that opportunity? Is it really aimed at widening the NAPA customer base in some way? And just given that initiative and the acquisition you announced today, are you expecting that elevated online percentage of the business remains peaking in the coming years?.

I'll take a shot at the first part of that. David, the Buy Now, Pay Later pilot, we're in about 250 NAPA stores. And look, I give our team credit for jumping on the opportunity. It's so early yet. It's -- I would misspeak if I tried to put a number to it. It's something new. We'd never done it before.

We're not doing it anywhere else in the world at this point. I would just tell you kind of stay tuned and certainly more to come on that initiative. And then I'm sorry, the second part of your question online.

Certainly, the acquisition that was announced, Automotive Accessories Garage, we're excited about that acquisition and it really goes hand-in-hand, David, with recent strategies where we acquired wind parts in Europe, we acquired spares parts in Australia, a few years back.

And it's really just broadening our knowledge base and expertise into all things online. I would certainly expect that this initiative here in the U.S. will follow in a same track that we've done in the international markets. And I'm very pleased to tell you that, they have exceeded our expectations.

It's still early at wind parts in Europe, but I would tell you that, early results are very, very, very favorable. And we expect to see the same as we really just expand our knowledge base in selling products online..

Great. Thank you very much..

Thank you..

We have reached the end of the question and answer session. I will now turn the call back over to management for closing remarks..

We'd like to thank you for your participation in today's earnings call. We look forward to updating you on our year-end and fourth quarter results in February, and thank you for your support..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day..