Q3 2022 Graco Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.
Good morning, and welcome to the third quarter Conference call for Graco, Inc.
Wish to access the replay for this call you may do so by visiting the company website at Www Dot <unk> Dot com.
Greg who has additional information available in a Powerpoint slide presentation, which is available as part of the webcast player.
At the request of the company, we will open the conference up for questions and answers after the opening remarks from management.
During this call various remarks may be made by management about their expectations.
<unk> and prospects for the future.
Remarks constitute forward looking statements for the purposes of the Safe Harbor provisions of the private Securities Litigation Reform Act.
Actual results may differ materially from those indicated as a result of various risk factors, including those identified in item one a of the company's 2021 annual report on Form 10-K and in item one a of the company's most recent quarterly report on Form 10-Q.
These reports are available on the company's website at Www Dot <unk> dot com and the SEC's website at Www Dot SEC Dot Gov.
Forward looking statements reflect management's current views and speak only as of the time they are made.
The company undertakes no obligation to update these statements in light of new information or future events.
I will now turn the conference over to Kathy Sean Rock Executive Vice President corporate controller and information systems.
Okay.
Good morning, everyone and thank you for joining our call I'm here today with Mark CN and David both.
I will provide an overview of our quarterly results before turning the call over to Mark for additional discussion.
Yesterday, we reported record third quarter sales of $546 million, an increase of 12% from the third quarter of last year.
Effect of currency translation rates was a significant headwind in the quarter.
On a constant currency basis sales increased 17% with growth in every segment and region.
Reported net earnings were $116 million for the quarter.
<unk> <unk> headwind from foreign currency reported EPS was <unk> 67 per diluted share an increase of 14%.
We expect translation rates to continue to be a challenge for the remainder of the year at current exchange rate the full year unfavorable effect of currency translation with decreased sales by 4% and earnings by 8% with a similar impact in the fourth quarter as we experienced this quarter.
The gross margin rate decreased 320 basis points in the quarter, while our pricing actions offset increased costs on a dollar basis the.
The margin rate declined 190 basis points.
In addition, foreign currency translation rates decreased our gross margin rate by approximately 130 basis points.
With regards to <unk>, we did see some commodity prices beginning to ease during the quarter. However, they were not enough to offset broad based inflationary cost increases.
Interim price increases were implemented throughout the third quarter and we will begin to see the full benefits in the fourth quarter and into next year.
Our 2022 pricing actions have and will continue to offset the input cost pressures on a dollar basis.
Operating expenses decreased $6 million or 5% in the quarter reduction from currency translation rates and sales and earnings based expenses were partially offset by volume and rate related increases.
The adjusted tax rate for the quarter was 19% due to the unfavorable effects of foreign earnings taxed at higher rates than the U S right.
We anticipate this trend will likely continue and expect our estimated annual tax rate will be 19% to 20%.
Cash flows from operations were $272 million for the year. This was a decrease of $86 million from last year.
Contributing factors include increased annual incentive payments and investments in working capital.
We have elevated inventory levels, which are reflective of the high backlog and higher accounts receivable balances due to the overall business growth.
Through the end of the quarter, we have repurchased two 5 million shares for $155 million.
We continued to repurchase shares in the first weeks of October and as the market close yesterday, we have repurchased three 5 million shares for $233 million year to date.
We also prepaid $75 million of our private placement debt made capital expenditures of $147 million with $75 million related to facility expansion projects.
And made dividend payments of $107 million.
Finally, our full year estimate for unallocated corporate expense and capital expenditures can be found in the conference call slide deck on page 10.
I'll turn the call over to Mark now for further discussion thank.
Thank you Kathy and good morning, everyone. All of my comments. This morning will be on an organic constant currency basis.
Sales in the quarter up mid teens with growth in all reportable regions and segments.
This resulted in a record third quarter results in both sales and operating earnings.
These gains were generally broad based with most major product lines experiencing good order tempo throughout the quarter.
Some of the increases were likely due to pricing actions taken in the third quarter, which were fully implemented by the end of September .
Our consolidated backlog was $440 million at the end of the quarter, which is $65 million higher than at the end of last year and $180 million higher than Q3 of 2021.
I was pleased with the overall business tempo and profitability during the quarter, Despite continued cost pressures and currency headwinds.
We saw some relief in commodity prices. However, they were not enough to offset a broad based inflationary environment.
We anticipate that the pricing actions, we have taken throughout the year will offset inflation on a dollar for dollar basis.
Now turning to some commentary on our segments.
Contractor segment sales were up mid teens for the quarter driven by outperformance in North America.
Out the door sales in our propane channel a robust demand for our protective coatings and spray foam product lines remained strong.
Painting contractors are still in demand and they have healthy pipelines of work.
Graco has contractor backlog decreased slightly.
During the third quarter to $90 million, but theres still 66% higher than a year ago.
Availability of certain components remains challenging and is the primary cause for our high backlogs.
Going forward, we are keeping an eye on indicators such as housing starts new and existing home sales commercial construction remodeling expenditures in interest rates.
While some of these readings are less favorable than they were three months ago, we have not seen any adverse impact to our business at this time.
The industrial segment grew 8% in the quarter with positive results in all reportable regions.
And achieved third quarter records for both sales and operating earnings.
Profitability continues to be strong with incremental margin growth of 69% for the quarter and 64% year to date.
Demand remains solid in all major geographies and key product categories, such as liquid, finishing powder coating and sealant and adhesive equipment.
Backlog is up $25 million compared to the end of last year and $65 million compared to the same time a year ago.
The process segment grew 30% for the quarter again, resulting in records for both revenue and operating earnings.
This is the sixth consecutive quarter with revenue growth greater than 20%.
Demand remains strong in all regions with continued broad based growth in lubrication equipment process pumps, environmental and semiconductor products.
Profitability improved throughout the quarter, resulting in 34% incremental margins despite cost pressures on key components.
Moving to our outlook.
Demand during the quarter was strong in all segments and regions. We are optimistic that these incoming order rates will continue for the remainder of the year, however, macroeconomic trends affecting many of our product lines and regions remain uncertain.
We are committed to our core strategies of launching new products investing in our manufacturing capabilities, expanding our global channel and pursuing profitable growth opportunities in attractive niche markets, either organically or through acquisitions.
Our backlog.
Is still near record levels, plus the effects of our pricing actions, we remain positioned to have a record year in 2022.
We are raising our 2022 revenue guidance to low double digit growth on an organic constant currency basis with growth expected in every reportable segment.
That concludes our prepared remarks, operator, we're ready for questions.
Thank you the question and answer session will begin at this time.
Ask a question you will need to press star one one on your telephone.
Your question will be taken in the order that is received please.
Please standby for your first question.
Our first question comes from Deane Dray.
With RBC capital markets. Please state your question.
Good morning, everyone.
Good morning Deane.
It sounds as though.
All segments, all regions doing well, but maybe you can just take us towards geographically.
And with some focus on most recently like last four weeks or so into October .
The puts and takes where youre seeing strength.
Might be.
Slowing if at all thanks.
Yes, I would say North America remains really strong in the Americas in general have been good for US all year I think it's the leading region in terms of revenue growth.
Europe's been surprisingly resilient given all the negative headlines and of course, we got a big headwind with.
Russia, and losing I think it's somewhere around $30 million of revenue on a on a 12 month basis in Russian sales, but despite that the absolute level of activity. There has been probably better than what we expected were all.
Holding our breath, a little bit for what's going to happen with <unk>.
This winter with energy and all those other things with snuffy, everyone reads in the paper, but at least as far as now in terms of what we're seeing.
Business seems to be on fairly good footing and then of course Asia Asia is also doing well really across multiple product categories.
We've had a little bit of stop and start with China throughout the year, but we haven't really seen anything other than maybe a little bit of a speed bump there. So I would characterize overall pretty.
Pretty healthy environment with respect to the last few weeks.
Really arent going to comment about that three weeks is pretty dangerous for weeks as dangerous to of course I did reference in my comments upfront that we did do pricing actions here in Q3 and I'm sure that there was some activity in terms of order rates in and around our pricing actions and experience says that after you do something like that.
You really got to wait a while before you can draw any firm conclusions. So we're going to do that.
I think the business is in good shape pretty healthy and very happy with the quarter.
And then just on the topic of price increases.
We had previous previously discussed that you all made the decision to.
Implement pricing price increase apart from your annual January just to clarify is that the one price increase because I know.
I heard it pour all price increases, but maybe that's just collectively across the individual businesses, but yes, yes.
Yes, sure the extent to which.
There has been price realization.
Yes, so I mean, we did two of this year, that's probably why we set increases. So we did the one earlier this year and then we did the one mid year and we did it really across all business units and all geographies.
So that that's the plural on that.
On that part of the question in terms of realization, it's very strong.
I think we've said before that about roughly two thirds of our growth in revenue. This year can be tied to realized pricing I think that that still holds to be true.
Our teams are doing a good job, making sure that you go through the pain of pushing through a price increase you want to make sure that you actually get it and everyone's super focused on it particularly in this kind of an environment where costs are still are still challenging.
I would just I would just add this is David.
I guess in terms of the recent price increase I, sometimes use the portal as well because.
Due to the different.
Notice periods around the world customers.
The actual announcements implementation date vary in North America. There was a there was a fair amount that was communicated in <unk>.
August some in September and then regionally because of notice requirements as March Mark touched on beginning and end of September . So we're really just now in the period, where all of the interim price adjustments have been communicated and are effective on future orders.
That's great color. Thank you.
Thank you.
Our next question comes from the line of Michael Halloran with Robert W. Baird.
Please state your question.
Hey, good morning, everyone.
No.
So a couple of questions here.
First on the inventory side, both through internal inventory and channel inventory.
Seems.
It seems like it will stand on the contract decided from a channel perspective, because of some of the availability challenges, but want to confirm that and any any thoughts on the other segment on the inventory side and then within the organization.
Where does the inventory stand now or at least because I know you said in prepared remarks, it's a little elevated but when do you think that starts normalizing out for you guys.
And you start seeing kind of incremental increased benefit on the cash flow side there.
Yes, I mean, theyre higher than what we want them to be and I think he can really tied to the backlog I mean, we've got 400 plus million of backlog I think normal business given the company and the dynamics is probably half of that with our large powder business and things like that.
So.
In a perfect World, where you were able to book and ship. The way. We did historically I think you could you could probably expect that backlog will come down and inventory levels would normalize. This is really again tied to components. We've got a lot in work in process inventory, where we've built up the equipment and its ready to go but we're waiting.
For electronic component or something to come in before.
Before we can ship it out so with regard to the channel I think that in <unk>, which is really the area, where I think most people ask us questions. The feedback that we're getting from our channel partners is on the pro side, Hey, give us everything you got we want it.
Youre still on back order most of our back orders and <unk> are on the pro side not so much on the home center side.
And on the home center side, I think they feel pretty good about where inventory levels are right now given the level of business that they've had.
So there hasnt been any mandates or any kind of communication from them that hey, we need more or we need less inventory at this point. So I think I think things are pretty stable there on the industrial side. They generally don't carry a lot to begin with.
So they're they rely on graco really to supply them and to be their inventory for a lot of this stuff. So I would characterize them as wanting as much as we can deliver on that side of the business and same thing on process too.
Great helpful and then.
We're one other contract question I suppose any differences on the channel side and then also any differences when you think about the.
The mix of the product category from some of the more simple products you saw on the contracted side versus the stuff really designed for the contractor out there.
Any notable trends in either of those two pieces.
I would say long term no, but short term I would say that our pro business has been stronger than our home center business, which I guess you would expect given the huge ramp up that we had there through the pandemic and throughout most of last year.
Margin rates are higher on that stuff, but they are more professional units.
As I said in the comments I think that the contractors feel like they're busy they're still hard to find pipelines are pretty good so.
That's sort of a short term thing that's going on right now but longer term.
I would say I would characterize.
A little bit differently.
Both product categories are super important to us, we really do believe that.
By having the low end the tradesmen product line it really causes.
Nice dynamic with respect to people that are thinking about getting into the painting business. They start low and then they move up the chain to a professional unit when they when they grow up and become pro contractor. So.
Both both categories are really important to the company and I would just add to that that on the we'll call. It on the the big contractor activity and the protective coatings in the spray foam insulator that business has been consistently strong throughout the whole year.
And then the mix of product is that skewing, a little higher towards the higher end because of the mix towards the pro channel and as a result.
Yes, I think at least in the short term here, we've seen some of that.
Great. Thanks for the questions really appreciate it great.
Alright.
Thank you. Our next question comes from the line of cerebral <unk> with Jefferies. Please state your question.
Hi, Thanks for taking my question kind of building on contract. Gary Obviously sales are at all time highs margin performance is still well below levels seen in 2020 could you talk through what you need to see to get back to you had almost 29% level.
Yes, I think.
That group in particular has been hit pretty hard on the cost increases probably disproportionate to some of the other businesses. They have a lot of electronic components that really go into all of their products.
When you step back and you run the math on our will be call purchase price variance, which is the difference between what we thought cost would be versus do they actually are in our factories. The vast majority of it goes into that business outsized compared to what their revenue is.
The pricing actions that we took here in the third quarter were really designed to offset costs.
And all of our pricing actions have sort of been of that nature and of course. If you are just offsetting cost and you get higher sales, but you don't get incremental margin on the on the sales that youre generating it really just translates into a lower margin rate going forward I do think that if cost pressures come down.
And we continue to push our pricing the way we have historically that there is margin expansion, there really efficient operation up there and Rogers they do a great job.
And to the extent that they have input costs that are lower than what they've been experiencing here in the last year or so we would expect margins to expand.
And then it looks like you're pretty positive on the demand outlook, maybe there's some margin upside price costs come into 2023. So how are you thinking about the optimal balance sheet here I think you bought back some shares that you are I mean, the cash position. So any update on how youre thinking about capital deployment and what the balance sheet should look like.
Well I think that the use of cash is.
One of the Great goes long stated strategies and I think you'll continue to see really.
Aggressive and consistent investment in product development.
Quarter in and quarter out.
The teams are working on a lot of new technologies now for the next for launches over the next couple of years.
The product.
Capex investments.
Both we'll call it.
Plant as well as maintenance equipment.
Our schedules are aggressive and we continue to.
Make strides in terms of we broken ground on our second building on our Dayton, Dayton complex, which will be our new state of the art.
Distribution center in.
We opened an opening in 'twenty four along with investments were making to support that.
<unk>.
Our equipment business.
Rois on existing.
Existing operations capacity investments and efficiency improvements are.
Still.
Very evident on projects that come to our internal Finance committee and we are being as aggressive as we've ever been and investments in that area.
And then that leaves us to balancing out what we want.
To do on the M&A side, where.
Our M&A team is engaged they are active.
They are diving into the markets and have a.
Have a very good understanding of the graco model and what's been successful and we're hopeful with some of the shall we call it.
Turbulence of recent months and the markets there could be some opportunities on that side and more agreeable pricing, perhaps then.
We've seen in the past and that leaves us to leave just on the share side and I think that we have been consistent in stating that we believe that it's.
Why is to remain opportunistic.
We believe that.
While <unk> has got great investment and cash flow characteristics.
Because we serve markets that are.
Cyclical in nature the street.
Or wrongly views this as a cyclical.
And when you're in a cyclical.
In the market there are opportunities to buy and when we see those we like to think in the past over several years, we've been aggressive and that will continue to be our position.
And then I'll just squeeze one more you mentioned product development cost, but I believe those are running slightly below last year's levels potentially on an elevated cost base Crystal could you just talk about how you're thinking about spending on any initiatives. There. Thank you, yes, we're putting we're putting as much backend as we can I think maybe some of that is due to the fact that we did some restructuring.
During last year that I think we talked about where we put a couple of other groups together and I think we're just getting better leverage out of those teams, particularly on the contractor side and also on the industrial side, but we're not holding anything.
Anything back there.
We continue to make investments we know that products are the lifeblood of the company and you Shouldnt expect any changes.
Perfect. Thanks, so much for taking my questions.
Yes.
Thank you. Our next question comes from Bryan Blair with Oppenheimer. Please state your question.
Thank you good morning, everyone.
Hey, Brian .
Very impressive growth in in process, Mark that you called out six consecutive quarter above 20%.
And which end markets or application you're teams clearly taking share there and also if there is anything to call out in terms of order timing or lumpiness.
Im assuming that isn't the case given the consistency of growth.
Believe you have.
<unk> asks dynamic with any of the process assets, but I figured I would ask.
Yeah, it's hard for us to know exactly whether we're taking share or not some of the companies are public. Some art. So our data is really is really pretty bad, but what I will say is that we've been really pleased with.
Multiple product categories there.
If you start with our.
Diaphragm pump business.
We're up there with a couple of a couple of two other competitors that are substantial and we've launched some new technology into that market, which has really helped that group I think maybe gain some incremental revenue that they wouldn't have otherwise had.
Our lubrication businesses are very good and in particular, our industrial lubrication businesses, where we sell injectors.
And then the machine tool industry, and I think our product availability and our.
Availability to serve customers as maybe a little bit better than some of the big competitors, there and I think thats one area, where we have gained new accounts.
Once you have them they are pretty sticky. So we're excited about that from a going forward perspective, our semiconductor business has been extremely good.
A lot of investment dollars going into there so that's helping with the growth rates as well and even in our environmental business landfill business, we've seen some growth growth there. So.
The team is really hitting well on all cylinders and and things are going well and we're happy with the results.
Good to hear I appreciate the color and if we if we do see fears come to fruition and contractors paint business.
It was pressured over the near term how much of an offset.
Mike <unk> and <unk>.
Pavement fee I realize payment is the smallest of the product categories, there, but I suspect youll us pretty nice tailwind there for at least a while.
Yes.
It's really a fairly broad product line that we have in contractor, although they all are tied in with construction.
Your line striping, we have texture, we have architectural coatings, which can be used on commercial and residential and remodeling projects, we have to spray foam which is.
But people do it for remodeling to upgrade and get better installation in their homes and the protective coatings, which is really the materials that are put on things that sit outside and are exposed to the elements like bridges and infrastructure build there might be some stuff there.
And also pipelines.
With oil being.
Higher than it was a year or so ago that helps investment there too so I.
I think that the area that is probably one that is worth keeping an eye on is more of the residential single family.
Construction, where we would expect things to slow down just given the spike in interest rates, but again like we said before our long term that's still a pretty good market because we are way under built here in North America, I think it's something like $4 5 million units, which is like three years of demand just bay.
Just on demographic. So you can go through periods, where maybe there was some softness but long term. These are still really really good markets for us.
Okay makes sense. Thanks again.
Thanks.
Sure.
Thank you. Our next question comes from the line of Matt Summerville with D. A Davidson <unk> company. Please state your question.
Thanks, Mark you sort of indicated that the timing of the interim price increase may have driven a little bit of order ahead, a little bit of buy ahead, whatever you call. It outside of contractor that doesn't seem all that rational in the other businesses.
As I've come to think about them. So should I assume that if you saw any of that related activity. It probably would've been just relegated the contractor could you expand a little more on that.
Yes, I think it's human nature right. If you do a price increase has come in and you got some capital in or out and you'll probably get to try to play it sooner rather than later so it may not happen quite as prevalent on the process side or on the industrial side, but I can't tell you that it doesn't happen.
And of course, the Big Channel partners that we have also we are very well aware of what we're doing on the pricing side. The good news.
All of the actions that we took.
<unk> taken this year is that nobody is really.
<unk> been surprised by them, but we haven't really had any pushback even from some of the large larger.
Partners that we have so everyone understands that we do try to manage it a little bit so like if we see an industrial distributor thats all of a sudden ordering a bunch of products and we can't tie it to a project we may ask them about it and I know that our teams do pushback on occasion, but.
My comments on the upfront or more that we would expect in a normal situation. When we were raising prices that there is a little bit of buy ahead.
And then how should we be thinking about obviously, it's early but based on what your inbound cost profile looks like for raw materials transportation et cetera, et cetera, how should we be thinking about the type of magnitude of price increase that we would be looking at for early 'twenty three and.
The fact that you did this interim action change your view on implementing another price increase here in a couple of months.
Yes, it's a good question as we sit here today when we run the math, we think we've really done a good job of offsetting the cost pressures that we have.
Today that we're experiencing really over the next 12 months, but.
We don't have a great crystal ball on whether input costs are going to go up or down there just sort of based on where things are today, we are still planning to raise prices early next year.
I think it'll be more on a.
Case by case basis, where some businesses May may go if I may not go some of the regions May may go. So I may not go but one of the things that I think we've learned as a company.
Here in this environment is that we have the ability to be a little bit more flexible in our pricing in this environment I think it's smart for us to stay flexible and not really commit to any specific dates or any specific percentages.
At this time and so that's the approach that we're taking.
Got it thanks Mark.
Yep.
Thank you. Our next question comes from the line of Jeffrey Hammond with Keybanc capital markets. Please state your question.
Yes, just just wanted to go back to M&A I think you highlight in the front of the slides kind of 3% to 4% growth you guys have been certainly been running well below that for a few years, just maybe speak to what you think maybe changes to get you more in that three to four Zip code.
Yes.
I would say the current environment is still a little bit elevated, but we are starting to see pricing become a little bit more reasonable comparative maybe what we had seen over the last couple of years.
We're really on a journey here of trying to create more of a competency at the company. When it comes to acquisitions, we've built up a corporate team that's doing a fantastic job. They are working with our business units all of the business units now talk about the M&A pipeline and the companies that they're targeting.
And it's going to take us some time really to kind of get our pipeline's up and be more active than what we've done in the past.
Our story to companies when we talk with them is we've got a lot to offer.
When we acquire a business we have a world class manufacturing, we understand customer requirements very well, we have an enviable global footprint and those are really the things that we're trying to leverage in the conversation. So when we talk about M&A contribution.
Those percentages were really talking about more on a long term basis through a cycle. Those are the targets that we're trying to achieve and I think that we're getting ourselves in a better position by putting some resources on it here in the last year than where we've been historically as a company.
I would just add that.
Just add on that point.
Building building out a team that's focused on this that's working with the business units.
They can do some of the missionary work in the market that really has been lacking over the last several years, we can't I mean, I know this firsthand I was in a couple of different businesses and we did work on M&A, but it was a lot more reactive when the blue books derived and having a proactive effort cultivation.
Of <unk>.
Potential candidates in the market first of all could help us perhaps.
Turnover, some turnover some rocks and expose.
Expose something good that we wouldn't ordinarily get it we were relying on the process and of course to the extent that we.
Can do that we may avoid the auction process, which is.
A tremendous process as I like to say for sellers.
Yes.
Okay, that's great and then just back on Europe .
A lot of people concerned there it.
It seems like maybe you saw some slowing in industrial versus the other ones. It seem quite resilient is there anything.
Kind of different about industrial where youre seeing more slowness or why why these other ones are kind of proving more resilient there.
Nothing nothing in particular of course of the quarter. So numbers can move around a lot just remind you too that we our European industrial number includes powder and powder can be lumpy with project activity and in this particular quarter. We had some of that so the legacy <unk> businesses were.
Strong and pretty solid through the quarter.
Okay and then just last one you gave us kind of the updated end market mix construction is a big bucket, but I don't know if you.
Over time, you kind of have a better sense of what that res non res mix might be within there. Thanks.
Yes, we really don't its hard to tell because when you buy paint sprayer.
Carol Williams store, you don't really know where that thing is going to go it could be out of a commercial job. When they are residential the next day I would say that.
It's a good mix.
In broad exposure to a lot of different customers and end markets.
But getting granular in terms of the details is pretty tough.
I'd say relying on relying on some of the external forecasts.
We see especially here in North America for different kinds of commercial construction.
Notwithstanding notwithstanding the challenges in areas like office the forecast for some of the large categories look pretty positive for 'twenty, three and 'twenty four.
Okay I appreciate it.
Thank you as a reminder to ask a question at this time. Please press star one one on your Touchtone telephone.
Our next question comes from Thomas Jonsson, with Morgan Stanley Investment Research. Please state your question.
Hi, Thanks, if we can just kind of go back to some of the regional dynamics here.
You mentioned that Europe was surprisingly persistence.
This quarter and obviously you called out EMEA last quarter is an area, where there was some weakening economic conditions to keep in mind through year end.
Just given the strong quarter here could you kind of update us on how your outlook has evolved in that region, and maybe where you have seen.
The biggest surprises from a customer standpoint there.
Yes, I think that all in all we're pretty happy with what the team is doing over there.
Demand levels, given the headwinds that they've had with.
Losing a fair amount of revenue to Russia, and then also struggling a bit with <unk>.
Our ability to get them various product lines.
It has slowed things down for them, we did see a little bit better flow out of our factories over to Europe in the quarter. So I think that helped them out.
But when you read about all the Doom and gloom and things of that nature I'm really proud of what our team has been able to accomplish in what's been a fairly challenging year, yes.
Yes, and I think that.
In time on time will tell because there is a lot of gloom and doom as mark touched on but.
In an environment of increased costs labor costs energy costs et cetera.
Does lay the groundwork for.
Grateful product lines with with even better rois, so notwithstanding the fact that.
We will.
Continue to follow events in Europe .
Economically and politically with a lot of interest.
A world of inflation, which I hate.
Pulp demand for products that make operations more efficient.
Great. Thanks, and then.
Just kind of looking at the United States last two quarters have been very strong from a revenue standpoint there.
Have you been surprised by the strength of of kind of your domestic business is there anything maybe transitory that's impacting us such as increased component availability.
In the near term sort of releasing some pent up demand.
Yes, I wouldn't say, we're surprised but a continuation we've sort of had this happening now for several quarters, where demand has been been good.
It's spread across multiple product categories and multiple end markets. So nothing nothing too surprising there.
From our from our window on the world.
Great. Thanks, I'll pass it back out.
Thank you.
Question comes from the line of Andrew Buscaglia with Bamberg capital markets. Please state your question.
Hey, good morning, guys alright.
Alright, good morning.
Yes.
Our industrial and process segment.
Often talk about factory upgrades is really the big driver and technology upgrades.
I'm wondering how much.
Influence really by that.
And maybe like some of it with.
While there is a lot of doom and gloom out there there are interesting things perking up like energy markets.
It's broader.
Industrial indicators are strong so I'm wondering what what is the real driver right now that we're seeing that confidence amongst your customer base that we're going to have the same demand and they are willing to upgrade those factories now.
Yes, I mean, it's hard to say when you've got.
Our product line and Thats like a mile wide and an inch deep as they say.
A lot of onesie twosies here and there but for sure. The vast majority of the stuff that we sell in industrial process winds up in a factory and I do believe that with some of the things that are going on and.
People looking for ways to take labor out of the equation, because labor is tight or looking for ways to reduce material consumption because material costs have gone through the roof.
Really does open some doors for us.
Our products, where you can go in and you can demonstrate a relatively quick payback by putting in a new product and upgrading upgrading customers. So.
I think that it's a good question.
Companies are investing I look at us I mean, we've invested a lot in our facilities over the last three years and a lot in the factories in terms of machine tools equipment, because demand is up and the paybacks are good so as long as that dynamics in place. It sets us up for continued strength and I would add on the.
Helping the industrial business.
Take a key market.
Automotive.
There's a lot of there's a lot of activity going on the automotive right now because they are obviously not on the EV side of course, but just.
Just more broadly around the world and they make decisions now for there.
For their product families over the next three to five years.
And those decisions unless we're in an extreme recessionary situation are ones, where their commitment to their product plans.
Yeah.
Sort of.
In good times and bad.
They will need to make certain investments in their plant and equipment to have what they need for the new product platforms and at least as speaking of that industry clock big product platforms, new ones is what drives demand for our kind of equipment.
Yes, okay.
Makes sense.
And maybe along those lines similar kind of bigger picture question, we haven't talked much about sort of your R&D strategy in a while.
And I'm wondering were where you are at with implementing things like sensors and technology into new products or is that more going to be coming from your M&A strategy.
I think most of our products are smart products or have the capability to the extent that the customer wants them and having data and providing feedback to customers has been a major focus of us. So for US I think we're very well along the way there.
Okay. Thank you.
Yep.
Thank you as there are no further questions I will now turn the conference over to Mark Sheahan.
Okay. Thank you for participating in today's call in closing I would like to acknowledge our employees around the world for their excellent efforts. This year, it's been a challenging environment across multiple disciplines, but especially in operations, where our manufacturing and purchasing teams have endured many unanticipated hurdles.
Our people are what makes this company great and it's been rewarding to watch the teams come together that concludes the call. Thank you.
That concludes the call thank you and goodbye.
This concludes our conference for today. Thank you all for participating and have a nice day.
Parties you may now disconnect.
The conference will begin shortly to raise Johan during Q&A you can dial one one.
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