Genuine Parts Co. downgraded to ’BBB-’ by S&P on high debt levels

Investing.com -- S&P Global Ratings has downgraded Genuine Parts Co. to ’BBB-’ from ’BBB’ with a negative outlook, citing elevated leverage expected to remain at or above 4x through 2026.

The rating agency noted that Genuine Parts’ adjusted leverage reached 4.7x at the end of the third quarter ended September 30, 2025, deteriorating further this year as restructuring costs weigh on profitability. Industry headwinds, including deferred vehicle maintenance spending and weakness in global manufacturing, have limited sales growth.

Restructuring charges of approximately $227 million over the past twelve months have pressured profitability, resulting in 9% adjusted EBITDA margins. S&P expects continued restructuring will keep adjusted leverage at 4.2x in 2025 and 4.0x in 2026.

The agency’s adjusted leverage calculation incorporates a portion of accounts payable within the company’s supply chain finance program and obligations related to its accounts receivable purchase program. These adjustments totaled about $3.1 billion of debt as of September 30, 2025, accounting for approximately 1.5x in leverage.

S&P noted that Genuine Parts has experienced more pressure on sales growth and profitability than its automotive peers. Lower profitability has caused free operating cash flow generation to fall below expectations, with S&P now forecasting annual FOCF of about $700 million this year, down from previous forecasts of $800 million to $1 billion.

The agency expects headwinds related to deferred maintenance spending to persist in 2026, with global manufacturing conditions remaining soft. Their base case projects revenue growth in the low-single-digit percent range in 2025 and 2026, driven by pricing actions amid relatively flat volumes.

S&P forecasts adjusted EBITDA margins improving to 9.6% in 2025 and 10.2% in 2026, leading to adjusted leverage of 4.2x this year, down from 4.5x in 2024, and 4.1x in 2026.

The company recently appointed two new members to its board of directors in connection with a cooperation agreement with activist investor Elliott Investment Management L.P., though S&P does not anticipate any near-term changes to the company’s overall strategy and capital allocation.

The negative outlook reflects Genuine Parts’ elevated leverage and the risk that operating challenges and macroeconomic headwinds could persist over the next year, resulting in leverage sustained above 4x.

S&P indicated it could lower the rating if operating performance deteriorates relative to its base case and the company is unable to reduce and sustain leverage below 4x. Conversely, the outlook could be revised to stable if performance and credit metrics improve, leading to expectations that adjusted leverage will sustain below 4x beginning in early 2027 or sooner.

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