Q1 2024 Graco Inc Earnings Call

April 25, 2024

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Operator: Good morning, and welcome to the first quarter conference call for Graco Inc. If you wish to access the replay for this call, you may do so by visiting the company website at www.graco.com.

Speaker Change: Good morning, and welcome to the first quarter Conference call for Graco, Inc. If you wish to access the replay for this call you may do so by visiting the company website at Www Dot <unk> Dot Com Graco has additional information available in a Powerpoint slide presentation, which is available as part of the.

Operator: Graco 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, plans, and prospects for the future. Such remarks constitute forward-looking statements for the purposes of the safe harbor provisions of the Private Securities Litigation Reform Act.

The webcast player at the.

Speaker Change: A 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 plans and prospects for the future. These remarks constitute forward looking statements for the purposes of the safe Harbor provisions of the private Securities Litigation Reform.

Operator: Actual results may differ materially from those indicated as a result of various risk factors, including those identified in item 1A of the company's 2023 annual report on Form 10-K and in item 1A of the company's most recent quarterly report on Form 10-Q. These reports are available on the company's website at www.graco.com and the SEC's website at www.sec.gov.

Speaker Change: Actual results may differ materially from those indicated as a result of various risks risk factors, including those identified in item <unk> of the company's 2023 annual report on Form 10-K and in item <unk> of the company's most recent quarterly report on Form 10-Q. These reports are available on the Companys website.

Speaker Change: Right at Www Dot <unk> dot com and the Sec's website at Www SEC Gov.

Operator: 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 Chris Knutson, Executive Vice President, Corporate Controller. Good morning, everyone, and thank you for joining us on our call. I'm here today with Mark Sheahan and David Lowe. I will provide a brief overview of our quarterly results before turning the call over to Mark for additional commentary.

Speaker Change: 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 Chris Koh Knutson executive.

Speaker Change: Vice President corporate controller.

Speaker Change: Good morning, everyone and thank you for joining our call I'm here today with Mark Sheahan, and David Loeb ill provide a brief overview of our quarterly results before turning the call over to Mark for additional commentary.

Operator: Yesterday, Graco reported first quarter sales of four hundred and ninety two million dollars, a decrease of seven percent from the first quarter of last year. Reported net earnings decreased five percent to one hundred and twenty two million dollars, or seventy one cents per diluted share. Excluding the impact of excess tax benefits from stock option exercises, adjusted non-GAAP net earnings were $113 million, or $0.65 per diluted share, a decrease of 12%. The effect of currency translation had no significant impact on sales or net earnings for the quarter.

Speaker Change: Yesterday, <unk> reported first quarter sales of $492 million, a decrease of 7% from the first quarter of last year reported net earnings decreased 5% to $122 million or <unk> 71 per diluted share excluding the impact of excess tax benefits from stock option.

Speaker Change: Sizes adjusted non-GAAP net earnings were $113 million or <unk> 65 per diluted share a decrease of 12%.

Speaker Change: The effect of currency translation had no significant impact on sales or net earnings for the quarter.

Christopher Knutson: The gross margin rate increased 30 basis points in the quarter. Strong price realization and lower product costs were more than enough to offset unfavorable product and channel mix from the industrial and contractor segments. Total operating expenses increased $5 million, or 4% of a quarter, mainly due to higher stock-based compensation and additional investment in new product development. Gross Margin Rate Improvement was not enough to offset sales volume declines and increased operating expenses during the quarter, resulting in an operating margin rate decline of 260 basis points. Interest and other expenses decreased $7 million during the quarter, driven primarily by higher interest income on cash held and lower interest expense as our long-term debt was The adjusted effective tax rate was 19.8%, which is consistent with our expected full-year tax rate of approximately 19.5% to 20.5% on an as-adjusted basis.

Speaker Change: Our gross margin rate increased 30 basis points in the quarter strong price realization and lower product costs were more than enough to offset unfavorable product and channel mix from the industrial and contractor segments.

Speaker Change: Total operating expenses increased $5 million or 4% in the quarter, mainly due to higher stock based compensation and additional investment in new product development.

Speaker Change: Gross margin rate improvement was not enough to offset sales volume declines and increased operating expenses during the quarter, resulting in operating margin rate decline of 260 basis points.

Speaker Change: Interest and other expenses decreased $7 million during the quarter, driven primarily by higher interest income on cash held and lower interest expense as our long term debt was repaid in 2023.

Speaker Change: The adjusted effective tax rate was 19, 8%, which is consistent with our expected full year tax rate of approximately 19, 5% to 25% on an as adjusted basis.

Christopher Knutson: Cash provided by operations totaled $119 million, an increase of $28 million from last year, driven mostly by favorable changes in working capital items, more than offsetting lower net earnings. Cash provided by operations as a percent of adjusted net earnings was $105,000. Significant year-to-date uses of cash include dividends of $43 million and capital expenditures of $37 million, including $30 million of facility expansion projects. These cash uses were offset by share issuances of $41 million.

Speaker Change: Cash provided by operations totaled $119 million, an increase of $28 million from last year, driven mostly by favorable changes in working capital items more than offsetting lower net earnings.

Speaker Change: Cash provided by operations as a percent of adjusted net earnings was 105%.

Speaker Change: Significant year to date uses of cash include dividends of $43 million and capital expenditures of $37 million, including $30 million of facility expansion projects. These cash uses were offset by share issuances of $41 million.

Christopher Knutson: A few comments as we look forward to the rest of the year. Based on current exchange rates, assuming the same volumes, mix of products, and mix of business by currency as in 2023, movement in foreign currencies would have no impact on net sales and a one percentage point unfavorable impact on net earnings for the full year. Finally, our full-year estimates for unallocated corporate expenses and capital expenditures remain unchanged and can be found in the conference call slide deck on page 9. I'll now turn the call over to Mark for further segment and regional commentary. Thank you, Chris. Good morning, everyone.

Speaker Change: A few comments as we look forward to the rest of the year based on current exchange rates, assuming the same volumes mix of products and mix of business by currency as in 2023 movement in foreign currencies would have no impact on net sales and a one percentage point unfavorable impact on net earnings for the full year.

Speaker Change: Finally, our full year estimates for unallocated corporate expense and capital expenditures remain unchanged and can be found in the conference call slide deck on page nine I'll now turn the call over to Mark for further segment and regional commentary.

Mark W. Sheahan: Thank you Chris Good morning, everyone. All of my comments. This morning will be on an organic constant currency basis.

Mark W. Sheahan: We began the year softer than expected with revenue declines across all segments driven by weakness in semiconductor process transfer equipment liquid, finishing and sealant and adhesive systems sales.

Mark W. Sheahan: All my comments this morning will be on an organic constant currency basis. We began the year softer than expected with revenue declines across all segments, driven by weakness in semiconductor process transfer equipment, liquid finishing, and sealant and adhesive systems sales. Contractor North America also started the year slow, but as the quarter progressed, our incoming order rates improved. Despite these challenges, both our lubrication and powder equipment finishing systems grew during the quarter.

Mark W. Sheahan: Contract or North America also started the year slow, but as the quarter progressed, our incoming order rates improved.

Mark W. Sheahan: Despite these challenges both our lubrication and powder equipment, finishing systems grew during the quarter and regionally EMEA contractor improved with a robust sales in spray foam and protective coatings, along with an improved pro paint channel.

Mark W. Sheahan: Volume declines put some pressure on margins in the quarter, but we are happy with the resilience in our gross margin rate, reflecting positive price cost relationships, while maintaining operating margins for each segment at or greater than 29%.

Mark W. Sheahan: And regionally, EMEA contractor improved with robust sales in spray foam and protective coatings, along with an improved pearl paint channel. Volume declines put some pressure on margins in the quarter, but we are happy with the resilience in our gross margin rate, reflecting positive price-cost relationships while maintaining operating margins for each segment at or greater than 29%. At the end of the quarter, our consolidated backlog was $285 million, which was $5 million higher than at the beginning of the year but was $65 million below the first quarter of last year.

Mark W. Sheahan: At the end of the quarter, our consolidated backlog was $285 million, which is $5 million higher than at the beginning of the year.

Mark W. Sheahan: That was $65 million below the first quarter of last year.

Mark W. Sheahan: The increase resulted from the improving incoming order trends, we saw at the end of the quarter, which have extended into April.

Mark W. Sheahan: Now turning to some commentary about our segments. The contractor segment was down 6% against a strong first quarter comp last year.

Mark W. Sheahan: <unk> is a bright spot with strong propane spray foam and protective coatings markets.

Mark W. Sheahan: North America was heavily impacted by the timing of this year's new product releases, which will primarily be in the second quarter.

Mark W. Sheahan: The increase resulted from the improving incoming order trends we saw at the end of the quarter, which have extended into April. Now turning to some commentary on our segments. The contractor segment was down 6% against a strong first quarter comp last year. However, the male was a bright spot with a strong pro paint, spray foam, and protective coatings market.

Mark W. Sheahan: Feedback from the channel has been positive and we're excited to start shipping orders of these products as they are fully released.

Mark W. Sheahan: Incoming order rates steadily improved as the quarter progressed, which gives us optimism that we can rebound from the soft start and see some growth.

Mark W. Sheahan: Backlog was up $10 million compared to the end of last year operating margins held up at 29% despite the lower sales volumes.

Mark W. Sheahan: North America was heavily impacted by the timing of this year's new product releases, which will primarily be in the second quarter. However, feedback from the channel has been positive, and we're excited to start shipping orders of these products as they're fully released. Incoming order rates steadily improved as the quarter progressed, which gives us optimism that we can rebound from the soft start and see some growth. Backlog was up $10 million compared to the end of last year. Operating margins held up at 29% despite the lower sales volume. However, the industrial segment declined 5% during the quarter.

Mark W. Sheahan: The industrial segment declined 5% during the quarter, we continued to have weakness in the Asia Pacific construction markets. It had a slow start globally in the liquid, finishing and sealant and adhesive systems businesses.

Mark W. Sheahan: Powder coatings systems sales were strong but were not enough to offset these declines.

Mark W. Sheahan: The battery alternative energy packaging and E mobility markets remain positive and we have generally seen good quoting activity in our key end markets.

Mark W. Sheahan: Operating margins were impacted by the overall decrease in sales volume revenue mix and higher product development spending.

Mark W. Sheahan: Moving to the process segment sales were down 10% compared to the same quarter last year.

Mark W. Sheahan: This segment is coming off of three years of strong results with broad based growth across all product categories.

Mark W. Sheahan: During this period operating earnings grew from 21% in the first quarter of 2020% to 29% this quarter. Despite the softer sales volume.

Mark W. Sheahan: We continued to have weakness in the Asia-Pacific construction markets and had a slow start globally in the liquid finishing, sealant, and adhesive systems businesses. Powder coating systems sales were strong, but were not enough to offset these declines. The battery, alternative energy, packaging, and e-mobility markets remain positive, and we have generally seen good quoting activity in our key end markets. However, operating margins were impacted by the overall decrease in sales volume, revenue max., and Higher Product Development Spending. Moving to the process segment, sales were down 10% compared to the same quarter last year.

Mark W. Sheahan: We continued to see growth in the quarter for the lubrication business, but that was more than offset by a decline in both semiconductor and process transfer equipment sales.

Mark W. Sheahan: Our semiconductor backlog as decent as we did see order rates improve as we exited the quarter and into the first few weeks of April.

Mark W. Sheahan: We are experiencing shipping delays of products headed into China due to enhanced license requirements.

Mark W. Sheahan: While order rates have improved we do expect continued headwinds in semiconductor products for the remainder of the year.

Mark W. Sheahan: Moving to our outlook January and February bookings were lower than the same periods last year. However bookings for March and the first three weeks of April are up nicely, resulting in flat year to date orders.

Mark W. Sheahan: This supports our outlook despite the 7% revenue decline in the quarter.

Mark W. Sheahan: In addition, our new products, especially in contractor are exciting and should provide incremental sales when compared to 2023.

Mark W. Sheahan: This segment is coming off three years of strong results with broad-based growth across all product categories. During this period, operating earnings grew from 21% in the first quarter of 2020 to 29% this quarter, despite the softer sales volume. We continued to see growth in the quarter for the lubrication business, but that was more than offset by a decline in both semiconductor and process transfer equipment sales. However, our semiconductor backlog is decent, as we did see order rates improve as we exited the quarter and into the first few weeks of April. We are experiencing shipping delays for products headed into China due to enhanced license requirements.

Mark W. Sheahan: Our teams are fully engaged and remain focused on delivering another year of growth in sales and earnings.

Mark W. Sheahan: We are reaffirming our full year revenue guidance of low single digit growth on an organic constant currency basis.

Speaker Change: That concludes the prepared remarks, I'll turn it over for questions.

Speaker Change: Thank you.

Speaker Change: The question and answer session will begin at this time to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star. One again your question will be taken in the order that is received please standby for your first question.

Speaker Change: Yes.

Speaker Change: Our first question comes from Deane Dray with RBC capital markets. You May proceed.

Deane Michael Dray: Thank you and good morning, everyone.

Speaker Change: Ian.

Deane Michael Dray: Hey, just I appreciate the.

Deane Michael Dray: The prepared remarks, you touched on that.

Mark W. Sheahan: While order rates have improved, we do expect continued headwinds and semiconductor products for the remainder of the year. Moving to our Outlook, January and February bookings were lower than the same period last year, but bookings for March and the first three weeks of April are up nicely, resulting in flat year-to-date orders.

Deane Michael Dray: The quarterly progression, which improved throughout the quarter by months. So maybe you can kind of give us some color there.

Deane Michael Dray: And that you tied that to Europe.

Deane Michael Dray: Your confidence in being able to reaffirm the guidance. So just take us through the context of that progression.

Deane Michael Dray: How much can the new products contribute in the second quarter and then.

Mark W. Sheahan: This supports our outlook despite the 7% revenue decline in the quarter. In addition, our new products, especially in contractor, are exciting and should provide incremental sales when compared to 2023. Our teams are fully engaged and remain focused on delivering another year of growth in sales and earnings. We are reaffirming our full-year revenue guidance of low single-digit growth on an organic, constant-currency basis. That concludes the prepared remarks. I'll turn it over to you for questions.

Deane Michael Dray: Maybe David has got some comments on this having.

Deane Michael Dray: Despite that falloff that gross margin was actually up is really encouraging so give us some context there. Thanks.

Speaker Change: Yes ill start and let David chime in on the margin or Chris as well, obviously, we had a slow start to the air January bookings were down February bookings were down.

Speaker Change: We saw a little bit of a pickup. So we are in positive territory in March and here at least for the first few weeks of April are up very nicely. So as I said in the opening comments.

Speaker Change: Even though we're down 7% in terms of our revenue or orders in house through the end of last week are actually flat with last year.

Operator: Thank you. The question-and-answer session will begin at this time. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced.

Speaker Change: The products are pretty exciting and <unk> been around here for a long time.

Speaker Change: 29 years.

Speaker Change: Don't really remember a time when we were as excited about the releases that we've got coming out this year, maybe when we went into the home center in the early two thousands would be another time when there was a lot of excitement, but there were really.

Operator: To withdraw your question, please press star 1-1 again. Your question will be taken in the order that it is received. Please stand by for your first question. Our first question comes from Deane Dray with RBC Capital Markets. You may proceed. Thank you. Good morning, everyone.

Speaker Change: Encouraged by some of the feedback that we've gotten from customers in a couple of different areas you might remember last year, we launched a product called quick shot and it was a gun that was actually solenoid and electronically actuated versus mechanical activated gun, that's pretty common in the Airbus equipment.

Deane Michael Dray: Hey, I just appreciate the prepared remarks. You touched on the quarterly progression, which improved month by month. So maybe you can give us some color there and tie that to your confidence and being able to reaffirm the guidance. So just take us through the context of that progression. How much can the new products contribute in the second quarter? And then, just maybe, David's got some comments on that.

Speaker Change: Industry quick.

Speaker Change: Quick shot I think we did tens of millions of dollars of revenue last year with that product and we're now taking that technology and we're going to run it through our entire airless line and it is also compatible with.

Speaker Change: All of our competitors are less equipment as well so if a contractor wants to have the performance of quick shot they're going to be able to have that for there.

Speaker Change: With whatever kind of are less equipment. They have of course, we hope it's Greg. We've also launched a whole new line of electric Motors and CD that are in our products that are quieter and they have higher performance than the orders that we had previously these are grateful designed and manufactured motors.

Mark W. Sheahan: Having, despite that fall off, that gross margin was actually up is really encouraging. So just give us some context there. Thanks. Yeah, I'll start and let David chime in on the margin or Chris as well.

Speaker Change: They are specifically designed in manufacturing for Airbus painting, and nobody else in the World has those and the feedback has been really good.

Speaker Change: A couple of really cool new products coming out in the flooring area.

Mark W. Sheahan: Obviously, we had a slow start to the year; January bookings were down, February bookings were down. But in March, we saw a little bit of a pickup. So we were in positive territory in March. And here, at least for the first few weeks of April, we're up very nicely.

Speaker Change: In the past people, who would be mixing in the buckets and then putting stuff on the floor.

Speaker Change: Got units now that are going to be doing that on the fly with variable ratio.

Speaker Change: The feedback from our channel partners has been really positive so I really.

Speaker Change: Feel very good about the traction that we hope to see on the new product side.

Mark W. Sheahan: So, as I said in my opening comments, even though we're down 7% in terms of our revenue, our orders in house through the end of last week were actually flat with last year. The products are pretty exciting in CED. I've been around here for a long time, 29 years.

Speaker Change: The economy is always a bit of a wildcard, but even if the economy is a little bit sluggish in homebuilding and some of the contractor markets. These are going to be great products for many many years to come David I'll, Let you talk about the gross margin alright. Thank you I appreciate.

David M. Lowe: I appreciate the opportunity to comment on the gross margin because.

Mark W. Sheahan: I don't really remember a time when we were as excited about the releases that we got coming out this year. Maybe when we went into the home center in the early 2000s would be another time when there was a lot of excitement, but we're really encouraged by some of the feedback that we've gotten from customers in a couple of different areas. You might remember last year we launched a product called QuickShot, and it was a gun that was actually solenoid and electronically activated versus a mechanically activated gun that's pretty common in the airless equipment industry.

David M. Lowe: The premise of the question.

David M. Lowe: Sure.

David M. Lowe: I was struck by some of the same.

David M. Lowe: But by the results we're in a pretty significant.

David M. Lowe: So in a softer environment than we had expected going into the year gross and operating margins by segment held up pretty well and.

David M. Lowe: Price realization has played a role across the business units our units have done a good segments have done a good job of price and.

David M. Lowe: And probably more importantly, both price and cost dynamics were favorable for the quarter.

Mark W. Sheahan: QuickShot, I think we made tens of millions of dollars in revenue last year with that product, and we're now taking that technology and running it through our entire airless line, and it's also compatible with all of our competitors' airless equipment as well, with whatever kind of airless equipment they have. Of course, we hope it's Graco.

David M. Lowe: <unk> the business segments, and I would have to go back a long time before I can make a claim like that so profitability.

David M. Lowe: Josh those units did hold up the segments did hold up pretty well and.

David M. Lowe: I remain hopeful that we're going to see certainly on the on the pricing side continued respectable realization and we.

Mark W. Sheahan: We've also launched a whole new line of electric motors in CED that are in our products that are quieter, and they have higher performance than the motors that we had previously. These are Graco designed and manufactured motors. They're specifically designed and manufactured for airless painting, and nobody else in the world has those.

David M. Lowe: We track our input costs carefully and.

David M. Lowe: At the at the moment, while they still remain elevated.

David M. Lowe: In several cases, they have come off peak.

Josh: That's really helpful and I realize I had asked a multipart first question. So I'll just keep my follow up very specific which of the end markets.

Mark W. Sheahan: And the feedback has been really good. A couple of really cool new products coming out in the flooring area, where in the past, people would be mixing in the buckets and then putting stuff on the floor. We've got units now that are going to be doing that on the fly with a variable ratio.

David M. Lowe: The positive and the negative.

David M. Lowe: What are the biggest swing factors so just.

David M. Lowe: Think semiconductor it sounded like was one of the negatives, but what would you be highlighting.

Mark W. Sheahan: And feedback from our channel partners has been really positive. So I really feel very good about the traction that we hope to see on the new product side. But, of course, the economy is always a bit of a wild card.

Speaker Change: Well I think for the quarter and really for the year, we anticipated.

Speaker Change: Pullback in semiconductor, which it kind of tracks the industry.

David M. Lowe: But even if the economy is a little bit sluggish in the home building and some of the contractor markets, these are going to be great products for many, many years to come. David, I'll let you talk about the gross margin. All right.

Speaker Change: Might remember over the last couple of years, we had a bunch of orders or a lot of backlog and we've worked off a lot of that I think we still have some backlog, but it's not what it was before the pundits are all predicting that it's going to pick up in the latter half of the year I guess, we'll see but that really wasn't unexpected I would say that.

David M. Lowe: Thank you. I appreciate the opportunity to comment on the gross margin. The premise of the question struck me, and by the results, where in a pretty significant, you know, in a softer environment than we'd expected going into the year, gross and operating margins by segment held up pretty well. And price realization has played a role across the business units; segments have done a good job of price, and probably more importantly, both price and cost dynamics were favorable for the quarter across the business segments.

Speaker Change: The weakness in the process transfer pumps and some of our industrial.

Speaker Change: Equipment markets at least to start the year.

Speaker Change: Below what we had expected them to be.

Speaker Change: As we kind of wrapped up the quarter and into April. It does look like we're starting to see a little bit of.

Speaker Change: Green shoots there in both of those camps.

Speaker Change: Okay. Thank you.

Speaker Change: Maybe I could just add a couple of other segments that people have touched on has been.

Speaker Change: Having having some respectable momentum.

Speaker Change: I know you like industry references here in North America.

Speaker Change: Some of our salespeople have cited activity and projects coming down the Pike in defense and on the solar side and our.

Deane Michael Dray: So profitability across those units did hold up, the segments did hold up pretty well, and I remain hopeful that we're going to see, certainly on the pricing side, continued respectable realization. And we track our input costs carefully, and at the moment, while they still remain elevated, in several cases, they have come down. That's really helpful, and I realized I had asked a multi-part first question, so I'll just keep my follow-up very specific. Which of the end markets, Um, the positive and the negative were the biggest swing factors? So just I think semiconductor, it sounded like, was one of the negatives. But what would you be highlighting?

Speaker Change: Europe Middle East team has also.

Speaker Change: Called out good project activity, especially in the protective coatings space and of course, the underlying stability in the price of oil probably helps demand in that market.

Speaker Change: Thank you.

Speaker Change: Thanks, Dave.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Mike Halloran with Baird You May proceed.

Michael Patrick Halloran: Hey, good morning, everyone.

Michael Patrick Halloran: Mike.

Michael Patrick Halloran: So.

Michael Patrick Halloran: Kind of following up on this than the order side in the end market commentary I certainly understand the order strength that you mentioned mark through picking up to March April is that optimism reflected in customer conversations channel feedback et cetera.

Mark W. Sheahan: Well, I think, you know, for the quarter and really for the year, we anticipated a pullback in semiconductor orders, which kind of tracks the industry. You might remember, over the last couple years, we had a bunch of orders or a lot of backlog, and we've worked off a lot of that. I think we still have some backlog, but it's not what it was before. The pundits are all predicting that it's going to pick up in the latter half of the year. I guess we'll see, but that one really wasn't unexpected.

Michael Patrick Halloran: I suppose what I'm getting at here is you've got a relatively choppy backdrop kind of holistically with a lot of moving pieces around a lot of different markets.

Speaker Change: As a chance you can get more episodic demand trends month to months.

Speaker Change: Curious therefore, if you think there is a chance that that's part of what's going on and if there is anything in the channel that would support that or is there just real synergy between what people are telling you where the order rates are coming in and given where inventory levels are and everything.

Speaker Change: It's hard for us to really know exactly what's going on because we're in so many different markets around the world and a lot of different niches, but if I were to characterize what we saw happening throughout the quarter, it's really as simple as it started off very slow and we started to see a pickup.

Mark W. Sheahan: I would say that the weakness in the process transfer pumps and some of our industrial equipment markets, at least to start the year, was, you know, below what we had expected them to be. And as we kind of wrapped up the quarter and into April, it does look like we're starting to see a little bit of, you know, green shoots there in both of those camps. Maybe I would just add a couple of other segments that people have touched on as having some respectable momentum. I know you like industry references.

Speaker Change: There are some areas within the segments that are stronger than others. I think we tried to highlight I would say that the contractor business in particular feels like it's on much firmer footing that it was when we started off the year.

Speaker Change: Is it still pretty weak and.

Speaker Change: In particular, China is there's just not as much capital flowing into their the construction markets have been tough.

Speaker Change: We are starting to see a little bit of a pickup there in the container industry, where they're starting to build containers again, but thats not going to be enough to really change the game there and of course, China is like the big thing for our business in China is <unk>.

David M. Lowe: Here in North America, some of our salespeople have cited activity and projects coming down. The Europe Middle East team has also called out good project activity, especially in the protective coating space. And, of course, the underlying stability in the price of oil probably helps demand in that way. Thank you. Thanks, Steve.

Speaker Change: Catches a cold everyone gets sick.

Speaker Change: All in all.

Speaker Change: I'm, probably more optimistic than pessimistic at this point, but we'll see because we're we're not the greatest at forecasting these short cycle businesses.

Operator: Thank you. One moment for questions. Our next question comes from Mike Halloran with Baird. You may proceed. Hey, good morning, everyone. I'd like to.

Speaker Change: No that makes sense and then two more here one just the timing of some of these product launches are these gradual through the year.

Michael Patrick Halloran: Kind of following up on this then, the order side and the end market commentary, I certainly understand the order strength that you've mentioned, Mark, through picking up through March, April. Is that optimism reflected in customer conversations, channel feedback, etc.? You know, I suppose what I'm getting at here is you've got a relatively choppy backdrop, kind of holistically with a lot of moving pieces around a lot of different, There's a chance you can get more episodic demand trends month to month, you know, curious therefore if you think there's a chance that that's part of what's going on and if there's anything in the channel that would support that, or is there just real synergy between what people are telling you and where the order rates are coming in and given where inventory levels are and everything?

Speaker Change: Do a lot of them start hitting in the second quarter.

Speaker Change: Most of them will launch here in Q2.

Speaker Change: For sure by the end of Q2 is what our target plans are at this point.

Speaker Change: Okay that makes sense.

Speaker Change: So does that essentially mean that front half a little slower growth.

Speaker Change: Even accounting for the <unk>, probably lower growth than the rest of the year is the thought process.

Speaker Change: Q2, I think as we will see the ramp up on the new product side, we have seen at least for the first three weeks here order rates that would indicate that we should see some.

Speaker Change: Decent business and perhaps even growth in Q2.

Speaker Change: But it does feel better than it did for sure a couple of months ago, Yes, and I would add that.

Speaker Change: The area that we are talking about primarily on the new products is the contractor channel and of course.

Speaker Change: You've heard us say before that.

Speaker Change: Without a doubt our most developed most sophisticated channel.

Michael Patrick Halloran: It's hard for us to really know exactly what's going on because we're in so many different markets around the world and in a lot of different niches. But if I were to characterize what we saw happening throughout the quarter, it's really as simple as it started off very slow, and we started to see a pickup. There are some areas within the segments that are stronger than others that I think we tried to highlight. I would say that the contractor business, in particular, feels like it's on much firmer footing than it was when we started the year. Asia is still pretty weak.

Speaker Change: The products have been presented to the to their to their buying and marketing organizations and when those project products are in fact launched.

Speaker Change: We will be able will be able to ship because they will they will want them in their product lineup for the for the spring and summer projects.

Speaker Change: Great really appreciate the help everyone. Thanks.

Speaker Change: Thanks, Mike.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Sarah <unk>.

Sarah: <unk> with Jefferies. You May proceed.

Mark W. Sheahan: In particular, China, there's just not as much capital flowing into there. The construction markets have been tough. We are starting to see a little bit of a pickup there in the container industry, where they're starting to build containers again, but that's not going to be enough to really change the game there. Of course, China is the big thing for our business. If China catches a cold, everyone gets sick.

Sarah: Thanks. Good morning, So just sticking with contractor I believe one of your major customers noted that spray equipment was actually up mid single digits and acquire so could you just help us understand the difference there versus the decline you saw.

Speaker Change: Yes, I think if it as always.

Speaker Change: Don't really know what would be the quick answer, but I do believe that at the end of last year. There was some inventory build that they.

Speaker Change: Third with respect to our equipment I think theres a difference between.

Mark W. Sheahan: All in all, I'm probably more optimistic than pessimistic at this point, but we'll see because we're not the greatest at forecasting these short-cycle businesses. No, no, that makes sense. And then two more here. One, just the timing of some of these product launches. Are these gradual through the year? Or do a lot of them start hitting you in the second?

Speaker Change: They are out the door sales and what we saw for orders and again as we kind of work through the end of the quarter I think that dynamic started to shift in our favor.

Speaker Change: And can I ask just follow up on that inventory levels. There I guess are normal at this point.

Speaker Change: Yes.

Speaker Change: And then I know the Decrementals in your business can be high volume smaller, but industrial margins declined more than we would have expected. So just any thoughts how much drove this and how do we think about this trend for the remainder of the year.

Mark W. Sheahan: Most of them will launch here in Q2, for sure by the end of Q2, is what our target plans are. That makes sense. And so does that essentially mean that the front half is a little slower growth? Even accounting for the, you know, two Qs, probably lower growth than the rest of the year is the thought process. Well, Q2, I think we will see the ramp-up on the new product side; we have seen, you know, at least for the first three weeks here, order rates that would indicate that we should see some decent business and perhaps even growth in Q2. Who knows, but it does feel better than it did, for sure, a couple of months ago.

Speaker Change: Yes part of it was mix.

Speaker Change: I think we noted that our powder equipment business was actually up in our legacy industrial businesses were down and there is a difference in the margin rates of those two.

Speaker Change: Groups those two categories.

Speaker Change: And then obviously.

Speaker Change: In addition to that we had different product mixes going on in different areas and within our legacy businesses. There was a little bit of a ramp up in product development spending here in the first quarter. Because they are also going to be launching products here in Q2, and so from last year's first quarter there was.

Speaker Change: A little bit of a spike on the on the spending side.

Speaker Change: And I'll just add one more I appreciate all the color on some of the new products. You mentioned these new products, adding to sales starting in the second quarter, but could you just help size that opportunity maybe looking at it.

Speaker Change: Historical performance when you put in a new product, especially in contractor like what does that lead to from an outperformance perspective.

Mark W. Sheahan: Yeah, and I would add that the area that we are talking about primarily for the new products is the contractor channel, and of course, you've heard us say before that that's without a doubt our most developed, most sophisticated channel. The products have been presented to their buying and marketing organizations, and when those products are in fact launched, we'll be able to ship because they will want them in their product lineup for spring and summer projects. I really appreciate the help everyone.

Speaker Change: Yes, we really don't get into details on how much incremental we get from our new products, but were happy with the investments generally and they do drive incremental business for us.

Speaker Change: Of course, we have internal estimates that we use to justify our projects and what we think the revenues might be but to be honest with you until they actually hit the market. We just really don't know, but I will just.

Speaker Change: Getting back to my comments earlier I would say that this particular slate of new products that we have coming out in CVD.

Speaker Change: And somebody who has been here for a long time.

Speaker Change: <unk> is pretty exciting and should move the needle if everything else stays consistent.

Michael Patrick Halloran: Thanks. Yep, thanks Mike. Thank you. One moment per question.

Speaker Change: Great. Thanks for the question yes.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Operator: Our next question comes from Saree Boroditsky with Jeffrey's. You may proceed. Thanks. Good morning. So just sticking with contractors, I believe one of your major customers noted that spare equipment was actually up mid-single digits in the quarter. So could you just help us understand the difference there versus the decline you saw? Yeah, I think if it's always, "we don't really know" would be the quick answer, but I do believe that at the end of last year, there was some inventory build that they did with respect to our equipment. I think there's a difference between their out-of-the-door sales and what we saw for orders.

Speaker Change: Our next question comes from Joe Ritchie with Goldman Sachs. You May proceed.

Joseph Alfred Ritchie: Thanks, Good morning, guys.

Joseph Alfred Ritchie: Right.

Joseph Alfred Ritchie: So maybe just maybe just following on that new product discussion I'm, just curious when you're thinking about this and hitting the shelves.

Joseph Alfred Ritchie: The Big box channel is there a stock in effect that youre that youre contemplating as well or is this just and you just expect end market demand for the product to be good.

Joseph Alfred Ritchie: I mean for sure once we launch a product if it's a good product they're going to want to have it in stock so theres going to be a stock in that happens just naturally.

Joseph Alfred Ritchie: Particularly with respect to the CBD products.

Joseph Alfred Ritchie: But I also believe that these are some pretty smart people that run these businesses and so they're not going to overstock theyre going to stock what they think the demand is going to be so we might see a little bit of a bump but then.

Saree Emily Boroditsky: And again, you know, as we kind of work through the end of the quarter, I think that dynamic has started to shift in our favor. And so I guess, just to follow up on that, inventory levels there, I guess, are normal at this point? Yeah.

Joseph Alfred Ritchie: The sell through for these products should be strong enough, where I wouldn't expect to see a big pullback, let's say later in the year because they did a big ramp up if that helps yes.

Speaker Change: I would agree with that.

Speaker Change: I would just add that the.

Saree Emily Boroditsky: And then I know the decrements in your business can be high when volumes are lower, but industrial margins declined probably more than we would have expected. So just any thoughts on what drove this, and how do we think about this trend for the remainder of the year? Yeah, part of it was mixed.

Speaker Change: The days that the times that we experienced maybe over the last 18 months to two years, where maybe some of the.

Speaker Change: Large.

Speaker Change: Box stores are ordered a little bit extra because they were.

Speaker Change: Fairly concerned about deliveries and supply chain challenges and such.

Saree Emily Boroditsky: I think we noted that our powder equipment business was actually up, and our legacy industrial businesses were down, and there was a difference in the margin rates of those two groups, those two categories. And then, obviously, in addition to that, we had, you know, different product mixes going on in different areas. And within our legacy businesses, there was a little bit of a ramp up in product development spending here in the first quarter because they're also going to be launching products here in Q2.

Speaker Change: That's not what we're talking about here there wont be it shouldnt be that effect now.

Speaker Change: We do have one forgot it.

Speaker Change: We do have one really interesting product going into the home center that I can talk about because we haven't released it.

Speaker Change: Called Cordless connect where you can take a cordless drill.

Speaker Change: And put at attachment onto it and turn it into a paint sprayer and we think that the home center is going to love it.

Speaker Change: And so that one was released recently, it's called Cordless connect you guys can look at it on our website, if you'd like but that could be a nice product for the home centers.

Speaker Change: All definitely I'll definitely check that one out of two for one.

Speaker Change: So mark I guess.

Saree Emily Boroditsky: And so, you know, from last year's first quarter, there was a there was a little bit of a spike on the And I'll just add one more. I appreciate all the color on some of the new products.

Speaker Change: With these new products that are that you're introducing I would imagine that the pricing is pretty good as well how does this does this change how you guys are thinking about pricing across the portfolio. This year.

Mark W. Sheahan: Well typically when we launch a new product.

Saree Emily Boroditsky: You know, you mentioned these new products adding to sales starting in the second quarter, but could you just help size that opportunity, maybe looking at historical performance? When you put in a new product, especially in contractor, like, what does that lead to from an output performance perspective? Yeah, we really don't get into details on how much incremental business we get from our new products, but we're happy with the investments generally, and they do drive incremental business for us. Of course, we have internal estimates that we use to justify projects and what we think the revenues might be.

Mark W. Sheahan: The upgrade of an existing product.

Mark W. Sheahan: We redesigned it.

Mark W. Sheahan: Take some costs out, we're just better and more efficient at it.

Speaker Change: I wouldn't say that there is any.

Speaker Change: Large incremental pricing on these products, but I would say the margin rates as a whole are consistent with what you would see across the CD businesses.

Speaker Change: Okay got it I'll get back in queue. Thank you very much alright, thanks, Joe.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Matt Summerville with D. A Davidson you May proceed.

Saree Emily Boroditsky: Okay.

Matt J. Summerville: Just back.

Matt J. Summerville: So the new products for a second did you consider this.

Saree Emily Boroditsky: More of.

Matt J. Summerville: And maybe nielsen's bolt, but do you consider this more of a refresh of existing product lines or an opportunity, where you're adding brand new tools to contractors tool belt and along those lines.

Saree Emily Boroditsky: But to be honest with you, until they actually hit the market, we just really don't know. But I will just, you know, getting back to my comments earlier, I would say that this particular slate of new products that we have coming out in CED, and somebody who's been here for a long time, is pretty exciting and should move the needle if everything else stays consistent. Great, thanks for the questions.

Speaker Change: Are you gaining shelf space or are you cannibalizing shelf space.

Speaker Change: Yes, it's a good question I would say, it's a mixed bag. So like the cordless connect product that I, just talked about you're adding something to someone's tool belt that they didn't have before bringing that quick shot technology, which you are going to again find on our website.

Saree Emily Boroditsky: And having that be able to be used by all of the airless sprayers in the world.

Operator: Yep. Thank you. One moment for questions. Our next question comes from Joe Ritchie with Goldman Sachs. He may proceed. Thanks, good morning guys.

Speaker Change: Also another tool that you would add that a contractor doesn't currently have access to today.

Joseph Alfred Ritchie: So maybe just following on that new product discussion, I'm just curious when you think about this and it hitting the shelves of some of the big box channels, is there a stock-in effect that you're contemplating as well, or is this just, you just expect end market demand for the product to be good? I mean, for sure, once we launch a product, if it's a good product, they're going to want to have it in stock. So there's going to be a stock in that that happens just naturally, particularly with respect to the CED products. But I also believe that these are some pretty smart people that run these businesses.

Speaker Change: The X T, which is our new airless.

Joseph Alfred Ritchie: Electric motor that Graco has designed and is built specifically for Airbus Sprayers that's.

Speaker Change: That's an upgrade that's.

Speaker Change: Taking an existing product and just making it better by putting that technology into it on that on the HP CF side of the equation the flooring units some of our protective coating units.

Joseph Alfred Ritchie: Contractors are doing that work today, but we're bringing them a better tool to get the job done giving them variable ratio capability given the ability to.

Speaker Change: Get away from having to do some hand, mixing making them more productive and making them more efficient really everything that that group does and CD when they launch a product is too.

Mark W. Sheahan: And so they're not going to, you know, overstock; they're going to stock what they think that demand is going to be. So we might see a little bit of a bump, but then the sell-through for these products should be strong enough where I wouldn't expect to see a big pullback, let's say, later in the year because they did a big ramp-up, if that helps. Yeah, I would agree with that. But I would just add that the times that we experienced, maybe over the last 18 months to two years, where maybe some of the large box stores ordered a little bit extra because they were fairly concerned about deliveries and supply chain challenges and such, that's not what we're talking about here.

Speaker Change: Bring more tools and a better experience to their customers when it comes to the materials that they got to apply.

Speaker Change: Bob.

Speaker Change: And as a follow up.

Speaker Change: Touch on whether or not youre seeing much in the way of anything from a momentum standpoint, when it comes to your M&A funnel pipeline is actually an ability changed.

Speaker Change: Obviously, you are sitting here with $600 million in cash and practically no debt.

Speaker Change: So how should we kind of be thinking about capital deployment from here.

Speaker Change: I feel pretty good about our pipeline I brought in M&A Guy a couple of years ago, and we've been working the pipeline hard the teams have been very thoughtful in the names that are on our list and we have been active in communicating our intentions with <unk>.

Mark W. Sheahan: There shouldn't be that effect now. We do have one really interesting product going into the Holm Center that I can talk about because we have released it. It's called Cordless Connect, where you can take a cordless drill and put an attachment on it and turn it into a paint sprayer.

Speaker Change: Some of the more substantial targets that we have.

Speaker Change: The.

Speaker Change: The proof is always getting getting the things done, but I do feel at least internally.

Mark W. Sheahan: And we think that the Holm Center is going to love it. And so that one was released recently. It's called Cordless Connect.

Speaker Change: In terms of what <unk> is doing I feel really good about our prospects.

Speaker Change: The market.

Joseph Alfred Ritchie: You guys can look at it on our website if you'd like, but that could be a nice product for the home. I'll definitely definitely take check that one out two for one. But so Mark, I guess, you know, with these new products that you're introducing, I would imagine that the pricing is pretty good as well. How does this do? Does this change how you guys are thinking about pricing across the portfolio this year?

Speaker Change: David and Chris might have a better view of this but from what I've read and what I've heard the market for deals is a little bit more favorable now than what it has been at least over the last six to 12 months.

Speaker Change: I would add.

Speaker Change: My impression talking with.

Speaker Change: Talking with our internal team and.

Speaker Change: Cross checking with some smart people on the outside.

Speaker Change: We see an increase in.

Speaker Change: I'll call it marketing activity from teasers to Blue books and their speculation out there again you guys think about this a lot more than I do but they are speculation out there that.

Joseph Alfred Ritchie: Well, typically, when we launch a new product, if it's an upgrade of an existing product, we've redesigned it to, you know, take some costs out. We're just better and more efficient at it. I wouldn't say that there's any, you know, large incremental pricing on these products. But I would say the margin rates, as a whole, are consistent with what you would see across the CD business. Okay. I'll get back in the queue.

Speaker Change: We're at we are where we're at in many private equity portfolios, where theyre at in their cycle now.

Speaker Change: Not a bad.

Speaker Change: Not unreasonable to expect them to bring some of their merchandise to market and big picture long term that could be an opportunity for us and also touching on our in our team and the work that mark alluded to that they're doing.

Joseph Alfred Ritchie: Yes.

Speaker Change: Increased activity of reaching out and initiating contacts and relationships.

Speaker Change: With companies.

Joseph Alfred Ritchie: Directly and.

Joseph Alfred Ritchie: Thank you very much. All right. Thanks, Joel. Thank you. One moment for questions. Our next question comes from Matt Summerville with D.A. Davidson.

Speaker Change: That's been really one of the important things we want this group to do.

Speaker Change:

Speaker Change: Not that there's anything wrong with auctions, but.

Joseph Alfred Ritchie: Exclusive discussions can sometimes generate some very interesting opportunities.

Matt J. Summerville: You may proceed. Thanks. Just back to the new products for a second, Mark. Do you consider this more of a refresh of existing product lines or an opportunity where you're adding brand new tools to a contractor's tool belt? And along those lines, are you gaining shelf space or are you cannibalizing shelf space? Yeah, it's a good question. I would say it's a mixed bag. So, like the Cordless Connect product that I just talked about, you're adding something to someone's tool belt that they didn't have before.

Speaker Change: The proof is in the results not in the good intentions, but I.

Speaker Change: I see what we're doing and I think it is.

Speaker Change: A series of steps in a good direction.

Speaker Change: Thanks, guys.

Speaker Change: Yep Thanks, Matt.

Speaker Change: Thank you.

Matt J. Summerville: One moment for questions.

Speaker Change: Our next question comes from Jeff Hammond with Keybanc you May proceed.

Jeffrey David Hammond: Hey, good morning, guys.

Jeffrey David Hammond: Hey, Jeff just just on.

Jeffrey David Hammond: I guess the contractor seems to make the most sense in terms of.

Jeffrey David Hammond: New product introductions and timing, but anything youre seeing in terms of.

Jeffrey David Hammond: Bigger orders or systems that would've gotten just pushed out from <unk> to <unk>.

Mark W. Sheahan: Bringing that QuickShot technology, which you can again find on our website, and having that be able to be used by all the airless sprayers in the world. That's also another tool that you would add that a contractor doesn't currently have access to today. The XT, which is our new airless electric motor that Graco has designed and built specifically for airless sprayers.

Jeffrey David Hammond: That would kind of lend itself to the weaker <unk> and maybe a better <unk>.

Mark W. Sheahan: Nothing that comes to my mind and I guess, if you look at the overall backlog that we had as a company starting the year and where we ended up at the <unk>.

Mark W. Sheahan: End of the quarter.

Jeffrey David Hammond: Was up just slightly and I think it was mostly due to the the orders that came in at the end of the quarter. There were no way is really pushing out anything in terms of orders our systems at least that I'm aware of.

Mark W. Sheahan: That's an upgrade. That's, you know, taking an existing product and just making it better by putting that technology into it. On the HPCF side of the equation, the flooring units, some of our protective coating units, contractors are doing that work today, but we're bringing them a better tool to get the job done, giving them variable ratio capability, giving them the ability to, you know, get away from having to do some hand mixing, making them more productive and making them more efficient.

Jeffrey David Hammond: Okay.

Mark W. Sheahan: And then.

Speaker Change: I guess within I mean, you're saying low single digits, but given the slow start there is there any kind of bias within that are you.

Jeffrey David Hammond: Look at the regions do you say, Hey, North America, and EMEA, a feel about right and Asia feels weaker just just any kind of <unk>.

Jeffrey David Hammond: Change within that just given the slow start.

Mark W. Sheahan: Well I would just go back to kind of what I said before for sure our ability to forecast is handicapped a lot by the by the fact that we're very short cycle business and any one region in a 13 week period could look really good and then the next one they may not look quite so good.

Mark W. Sheahan: Really everything that that group does in CED when they launch a product is to, you know, bring more tools and a better experience to their customers when it comes to the materials that they have to apply. And then, as a follow-up, maybe you can sort of touch on whether or not you're seeing much in the way of anything from a momentum standpoint when it comes to your M&A funnel pipeline. Has actionability changed? I mean, obviously, you're sitting here with $600 million in cash and practically no debt.

Jeffrey David Hammond: The way I look at it where were 13 lapse into a 50 to lap race. So we haven't changed the tires yet on the car. So I think that there is plenty of year left here.

Jeffrey David Hammond: All business units all regions are are pushing hard towards growth and we'll we'll do our best to make that happen.

Mark W. Sheahan: I would just add if you take a look at the outlet the outlook chart with the colors on it you can get kind of a sense of where we see.

Matt J. Summerville: So how should we kind of be thinking about capital deployment? Yeah, I feel pretty good about our pipeline. You know, I brought in an M&A guy a couple of years ago, and we've been working the pipeline hard. The teams have been very thoughtful in the names that are on our list.

Matt J. Summerville: Our feeling okay about the opportunities with.

Matt J. Summerville: Greenish in the industrial segment and in the Americas as well as I think some some some possibilities in that contractor space for all the reasons that mark touched on.

Mark W. Sheahan: And we have been active in communicating our intentions with some of the more substantial targets that we have. In terms of what Graco is doing, I feel really good about our prospects. The market, you know, David and Chris might have a better view of this, but from what I've read and what I've heard, the market for deals is a little bit more favorable now than it has been, at least over the last, you know, 6 to 12 months.

Mark W. Sheahan: I am hopeful that we will continue to see some.

Mark W. Sheahan: A respectable momentum in the.

Jeffrey David Hammond: European market.

Mark W. Sheahan: EMEA market for contractor and I think you can get a flavor for how we have equalize the colors in Asia Pacific.

Mark W. Sheahan: Yeah, I would add, yeah, that's my impression talking with, you know, talking with our internal team, and cross-checking with some smart people on the outside. We see an increase in, I'll call it, marketing activity from teasers to blue books, and there's speculation out there, again, you guys think about this a lot more than I do, but there's speculation out there that where we are at in many private equity portfolios, where they're at in their cycle now, it's not unreasonable to expect them to bring some of their merchandise to market, and Mark Liptak, Mark Shea And, you know, that's really one of the important things we want this group to do. Not that there's anything wrong with auctions, but exclusive discussions can sometimes generate some very interesting opportunities.

Mark W. Sheahan: <unk>.

Jeffrey David Hammond: Definitely concerns there across the board.

Jeffrey David Hammond: We have some we do have some bright spots there too but.

Jeffrey David Hammond: The size of China.

Mark W. Sheahan: And some of the things that we've seen in construction and industrial and in process markets and other things.

Mark W. Sheahan: <unk>.

Mark W. Sheahan: At least at the moment.

Jeffrey David Hammond: At the 13th.

Jeffrey David Hammond: We lap.

Mark W. Sheahan:

Jeffrey David Hammond: It gives us a little more caution there than in the other parts of the world.

Speaker Change: Okay, great. Thanks, guys.

Speaker Change: Thanks, Jeff.

Mark W. Sheahan: Thank you and as a reminder to ask a question. Please press star one on your telephone.

Mark W. Sheahan: Our next question comes from Walter Liptak with Seaport Research you May proceed.

Speaker Change: Hey, good morning, guys.

Walter Scott Liptak: And thanks for the color on the monthly cadence.

Speaker Change: Just a follow up on that.

Mark W. Sheahan: I think we kind of knew going into the quarter that things could be a little bit weaker in the comp would be a little bit tougher but.

Mark W. Sheahan: Is there something like postmortem that you looked at and said okay.

David M. Lowe: So the proof is in the results, not in the good intentions, but I see what we're doing, and I think it is a series of steps in a good direction. Yes, thanks for that. Thank you. One moment for questions. Our next question comes from Jeff Hammond with KeyBank. Please proceed. Hey, good morning, guys. Hey Jeff, just, just on, um...

Mark W. Sheahan: China was weaker or industrial was weaker in the U S.

Jeffrey David Hammond: If you did that what was it and why.

Jeffrey David Hammond: Well I would kind of say what I think we said earlier, which is essentially that we started out slower than we thought we would particularly in some of the industrial product categories and also.

Jeffrey David Hammond: Some of the pumping equipment that goes into factories that we call process transfer equipment. These are like diaphragm pumps that have a lot of different applications and that wasn't just limited to the Asia Pacific region that was I would say our expectation would have been higher for those product categories in all other regions and what we actually.

Jeffrey David Hammond: I guess the contractor seems to make the most sense in terms of, you know, new product introductions and timing, but anything you're seeing in terms of, you know, bigger orders or systems that, you know, would have gotten just pushed out from 1Q to 2Q that would, you know, kind of lend itself to the weaker 1Q and maybe a better 2Q. Nothing that comes to my mind, and I guess if you look at the overall backlog that we had as a company at the start of the year and where we ended up at the end of the quarter, it was up just slightly, and I think it was mostly due to the orders that came in at the end of the quarter. Nobody was really pushing out anything in terms of orders or systems, at least that I'm aware of. Okay. And then, um...

Jeffrey David Hammond: We actually experienced and you.

Speaker Change: You have an idea of what's the cause of that is semi.

Jeffrey David Hammond: <unk> because it just seems like it just seemed like it was.

Jeffrey David Hammond: A general slowdown compared to what we thought we would have to start off the year. The good news of course is that things seem to get more on firm footing here.

Jeffrey David Hammond: As we kind of worked through the quarter things look a little bit better to us.

Speaker Change: Okay, Yes, that's great.

Jeffrey David Hammond: And then in Europe, the Europe numbers.

Speaker Change: Pretty good considering everything.

Jeffrey David Hammond: Europe, and so I wonder was that related to the powder business.

Jeffrey David Hammond: I think Jim Arthurs pretty strong or are you seeing a different trend in Europe I think.

Mark W. Sheahan: I guess within, I mean, you're saying low single digits, but, you know, given the slow start, is there any kind of bias within that? Or, you know, as you look at the regions, do you say, hey, North America and EMEA feel about right, and Asia feels weaker? Any kind of, you know, change within that, just given the slow start? Well, I would just go back to kind of what I said before. For sure, our ability to forecast is handicapped a lot by the fact that we're a very short cycle business.

Mark W. Sheahan: You made some comments earlier as well.

Mark W. Sheahan: But we had some lift in Europe.

Mark W. Sheahan: From the from the contractor side of the business and we I think mentioned.

Mark W. Sheahan: The protective coatings business, we called out the foam I'll volunteer that the sell through to the propane channel was seen as pretty good and I think those were probably the more the more positive pieces of the story.

Mark W. Sheahan: On the I'll call it in the in the other segments on the industrial side.

Mark W. Sheahan: And, you know, any one region in a 13-week period could look really good. And then the next one, they may not look quite so good. The way I look at it, we're 13 laps into a 52-lap race, and we haven't changed the tires yet on the car.

Mark W. Sheahan: I think the I think.

Mark W. Sheahan: The market, we would characterize as being a bit more anemic.

Mark W. Sheahan: And of course in Europe.

Mark W. Sheahan: The powder market powder equipment market is a larger percent of the industrial segment than in the other and the other two regions and it was it was it was flattish for the period.

Mark W. Sheahan: So I think that there's plenty of year left here. All business units, all regions are pushing hard toward growth, and we'll do our best to make that happen. Yeah, I would just add, if you take a look at the outlet, the outlook chart with the colors on it, you can get kind of a sense of where we see, are feeling okay about the opportunities with, you know, greenish in the industrial segment and in the Americas, as well as, I think, some, you know, some possibilities in that contractor space for all the reasons that Mark touched on.

Mark W. Sheahan: And then in the process space.

Mark W. Sheahan: I think there we got off to a slow start.

Mark W. Sheahan: Channel or orders that we were.

Mark W. Sheahan: <unk> received from the channel just just werent there at the beginning of the year.

Speaker Change: Okay, great. Thanks for that.

Mark W. Sheahan: Color on that and then maybe a last one for me with.

Mark W. Sheahan: A discussion of the new products, which I think is great.

Speaker Change: Is there a new products Ben.

Mark W. Sheahan: Off in the second quarter in the second half once you get these new products launched.

Mark W. Sheahan: I'm hopeful that we will continue to see some respectable momentum in the European market, the EMEA market for contractors. And I think you can get a flavor for how we have equalized the colors in Asia Pacific. You know, you know, definitely concerns there across the board. We have some, we do have some bright spots there, too.

Mark W. Sheahan: Not in a meaningful manner.

Speaker Change: Okay, great. Okay. Thanks, guys.

Mark W. Sheahan: Thank you if there are no further questions I will now turn the conference over to Mark <unk>.

Speaker Change: Alright, well. Thank you very much for participating today that concludes the call and have a good rest of your day.

Speaker Change: Thank you. This concludes our conference for today. Thank you all for participating and have a nice day all parties may now disconnect.

David M. Lowe: But the size of China and some of the things that we've seen in construction and industrial and in process markets and other things, you know, at least at the moment, at the 13th week lap, gives us a little more caution there than in other parts of the world. Okay, great. Thanks. Yep, thanks Jeff. Thank you. And as a reminder, to ask a question, please press star one one on your telephone.

Mark W. Sheahan: Okay.

David M. Lowe: Yes.

David M. Lowe: Sure.

David M. Lowe: Okay.

David M. Lowe: Yes.

David M. Lowe: [music].

David M. Lowe: Yes.

David M. Lowe: Okay.

Operator: Our next question comes from Walt Liptak with Seaport Research; you may proceed. Hey, good morning, guys. And thanks for the color on the monthly cadence.

David M. Lowe: Okay.

Operator: Okay.

Walter Scott Liptak: And, you know, just a follow-up on that. You know, I think we kind of knew going into the quarter that things could be a little bit weaker, and the comp would be a little bit tougher. But, you know, is there something like a postmortem that you looked at and said, okay, you know, China was weaker or industry was weaker in the U.S. And if you did that, what was it and why?

Walter Scott Liptak: Okay.

Walter Scott Liptak: Yes.

Walter Scott Liptak: <unk>.

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Walter Scott Liptak: Yes.

Walter Scott Liptak: Okay.

Walter Scott Liptak: [music].

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Walter Scott Liptak: Okay.

Walter Scott Liptak: Yes.

Walter Scott Liptak: [music].

Walter Scott Liptak: Well, I would kind of say what I think we said earlier, which is essentially that we started out slower than we thought we would, particularly in some of the industrial product categories and also some of the pumping equipment that goes into factories that we call process transfer equipment. These are like diaphragm pumps that have a lot of different applications.

Walter Scott Liptak: Okay.

Walter Scott Liptak: [music].

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Walter Scott Liptak: Yes.

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Walter Scott Liptak: [music].

Walter Scott Liptak: Thanks.

Walter Scott Liptak: [music].

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Walter Scott Liptak: Yes.

Walter Scott Liptak: Okay.

Walter Scott Liptak: [music].

Walter Scott Liptak: Yes.

Mark W. Sheahan: And that wasn't just limited to the Asia-Pacific region. I would say our expectations would have been higher for those product categories in all of the regions than what we actually experienced. And if you have an idea of what the cause of that is, send me a note, because it just seemed like it was a general slowdown compared to what we thought we would have to start off the year. The good news, of course, is that things seem to be getting more on firm footing here.

Mark W. Sheahan: Okay.

Mark W. Sheahan: Yes.

Mark W. Sheahan: And as we kind of work through the quarter, things look a little bit better. Okay, yeah, that's great. And in Europe, the European numbers look pretty good considering everything in Europe. And so I wonder, was that related to the powder business? I think Gemma out there is pretty strong.

Mark W. Sheahan: Okay.

Mark W. Sheahan: Yes.

Mark W. Sheahan: Okay.

Mark W. Sheahan: [music].

Mark W. Sheahan: Okay.

Mark W. Sheahan: Tom.

Mark W. Sheahan: Okay.

Mark W. Sheahan: Yes.

Mark W. Sheahan: Okay.

Walter Scott Liptak: Okay.

Walter Scott Liptak: Yes.

Walter Scott Liptak: [music].

Mark W. Sheahan: I'll volunteer that they sell through the propane channel. I think those were probably the more positive pieces of the story. I'll call it in the other segments, on the industrial side, I think the market we characterize as being a bit more anemic. And, of course, in Europe, the powder equipment market is a larger percent of the industrial segment than in the other two, flattish for the period.

Walter Scott Liptak: Okay.

Walter Scott Liptak: [music].

Mark W. Sheahan: Okay.

Mark W. Sheahan: Sure.

Mark W. Sheahan: [music].

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Mark W. Sheahan: Yes.

Mark W. Sheahan: [music].

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Mark W. Sheahan: Yes.

Mark W. Sheahan: Okay.

Mark W. Sheahan: And then in the process space, I think there we got off to a slow start, you know, channel orders that we were hoping to receive from the channel just weren't there. Okay, great. Thanks for that. The discussion of the new products, which I think is great, is there a new product spend that drops off in the second quarter or in the second half once you get these new products? Not in a meaningful manner. Okay, great.

Mark W. Sheahan: Okay.

Mark W. Sheahan: Yes.

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Mark W. Sheahan: Yes.

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Mark W. Sheahan: Yes.

Mark W. Sheahan: Okay.

Walter Scott Liptak: Okay, thanks. Thank you. If there are no further questions, I will now turn the conference over to Mark Sheahan. Alright, well, thank you very much for participating today. That concludes the call, and have a good rest of your day.

Walter Scott Liptak: [music].

Walter Scott Liptak: Okay.

Walter Scott Liptak: [music].

Mark W. Sheahan: Thank you. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect. ?? ?? ?? ?? ?? Thanks for watching! ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? Music Music Music, Good morning and welcome to the first quarter conference call for Graco Inc. If you wish to access the replay for this call, you may do so by visiting the company website at www.graco.com.

Mark W. Sheahan: Okay.

Mark W. Sheahan: [music].

Mark W. Sheahan: Okay.

Operator: Okay.

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Christopher Knutson: Thank you.

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Christopher Knutson: Yes.

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Christopher Knutson: Okay.

Speaker Change: 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 plans and prospects for the future. These remarks constitute forward looking statements for the purposes of the safe Harbor provisions of the private Securities Litigation Reform.

Mark: <unk> actual results may differ materially from those indicated as a result of various risks risk factors, including those identified in item <unk> of the company's 2023 annual report on Form 10-K and in item <unk> of the company's most recent quarterly report on Form 10-Q. These reports are available on the company's web.

Mark: Site at Www Dot <unk> dot com and the Sec's website at Www SEC Gov.

Mark: 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.

Speaker Change: I'll now turn the conference over to Chris Koh Knutson.

Mark W. Sheahan: Executive Vice President corporate controller.

Mark W. Sheahan: Yesterday, <unk> reported first quarter sales of $492 million, a decrease of 7% from the first quarter of last year reported net earnings decreased 5% to $122 million or <unk> 71 per diluted share excluding the impact of excess tax benefits from stock option.

Mark W. Sheahan: Sizes adjusted non-GAAP net earnings were $113 million or <unk> 65 per diluted share a decrease of 12%.

Mark W. Sheahan: The effect of currency translation had no significant impact on sales or net earnings for the quarter.

Mark W. Sheahan: The gross margin rate increased 30 basis points in the quarter strong price realization and lower product costs were more than enough to offset unfavorable product and channel mix from the industrial and contractor segments.

Mark W. Sheahan: Total operating expenses increased $5 million or 4% in the quarter, mainly due to higher stock based compensation and additional investment in new product development gross.

Mark W. Sheahan: Gross margin rate improvement was not enough to offset sales volume declines and increased operating expenses during the quarter, resulting in operating margin rate decline of 260 basis points.

Mark W. Sheahan: Interest and other expenses decreased $7 million during the quarter, driven primarily by higher interest income on cash held and lower interest expense as our long term debt was repaid in 2023.

Mark W. Sheahan: We continue to have weakness in the Asia-Pacific construction markets. It had a slow start globally in the liquid finishing, sealant, and adhesive systems businesses. Powder coating systems sales were strong, but were not enough to offset these declines. However, the battery, alternative energy, packaging, and e-mobility markets remain positive, and we have generally seen good quoting activity in our key end markets. Operating margins were impacted by the overall decrease in sales volume, revenue mix, and higher Product Development Spending.

Mark W. Sheahan: Moving to the process segment, sales were down 10% compared to the same quarter last year. This segment is coming off of three years of strong results with broad-based growth across all product categories. During this period, operating earnings grew from 21% in the first quarter of 2020 to 29% this quarter, despite the softer sales volume. We continued to see growth in the quarter for the lubrication business, but that was more than offset by a decline in both semiconductor and process transfer equipment sales.

Mark W. Sheahan: Our semiconductor backlog is decent, as we did see order rates improve as we exited the quarter and into the first few weeks of April. However, we are experiencing shipping delays of products headed into China due to enhanced license requirements.

Operator: Thank you. The question-and-answer session will begin at this time. To ask a question, please press star-one-one on your telephone and wait for your name to be announced.

Operator: To withdraw your question, please press star-one-one again. Your question will be taken in the order that it is received. Please stand by for your first question. Our first question comes from Deane Dray with RBC Capital Markets. You may proceed. Thank you. Good morning, everyone.

Deane Michael Dray: Hey, just I appreciate the prepared remarks you touched on the quarterly progression, which improved throughout the quarter by month. So maybe you've got to give us some color there and that you tied that to your confidence and being able to reaffirm the guidance. So just take it in the context of that progression. How much can the new products contribute in the second quarter? And then, just maybe, David's got some comments on this.

Mark W. Sheahan: Obviously, we had a slow start to the year; January bookings were down, February bookings were down. In March, we saw a little bit of a pickup. So we were in positive territory in March, and here, at least for the first few weeks of April, we're up very nicely. So, as I said in my opening comments, even though we're down 7% in terms of our revenue, our orders in-house through the end of last week were actually flat with last year. The products are pretty exciting at CED. I've been around here for a long time, 29 years.

Mark W. Sheahan: QuickShot, I think we made tens of millions of dollars in revenue last year with that product, and we're now taking that technology and running it through our entire airless line, and it's also compatible with all of our competitors' airless equipment as well. So if a contractor wants to have the performance of QuickShot, they're going to be able to have that for themselves with whatever kind of airless equipment they have. Of course, we hope it's Graco.

Mark W. Sheahan: We've also launched a whole new line of electric motors in CED that are in our products that are quieter, and they have higher performance than the motors that we had previously. These are Graco-designed and manufactured motors. They're specifically designed and manufactured for airless painting, and nobody else in the world has those.

Mark W. Sheahan: And feedback from our channel partners has been really positive, so I really feel very good about the traction that we hope to see on the new product side. Of course, the economy is always a bit of a wild card, but even if the economy is a little bit sluggish in the home building and some of the contractor markets, these are going to be great products for many, many years to come. David, I'll let you talk about the gross margin. All right, thank you.

David M. Lowe: I appreciate the opportunity to comment on gross margin because, the premise of the question, I was struck by some of the same results, where in a pretty significant, you know, in a softer environment than we'd expected going into the year, gross and operating margins by segment held up pretty well. And price realization has played a role across the business units; units have done a good job of price realization, and probably more importantly, both price and cost dynamics were favorable for the quarter across the business segments, and I would have to go back a long time before I could make a claim like that, so profitability across those units did hold up, the segments did hold up pretty well, and I remain hopeful that we're going to see, certainly on the pricing side, That's really helpful.

David M. Lowe: We're now taking that technology, and we're going to run it through our entire airless line and it is also compatible with.

David M. Lowe: All of our competitors are less equipment as well so if a contractor wants to have the performance of quick shot they're going to be able to have that for there.

David M. Lowe: With whatever kind of Airbus equipment. They have of course, we hope it's Greg. We've also launched a whole new line of electric Motors and <unk> that are in our products that are quieter and they have higher performance than the orders that we had previously these are grateful designed and manufactured motors.

David M. Lowe: <unk>, specifically designed in manufacturing for Airbus painting, and nobody else in the World has those and the feedback has been really good.

David M. Lowe: In the past people, who would be mixing in the buckets and then putting stuff on the floor. We've got units now that are going to be doing that on the fly with variable ratio and feedback from our channel partners has been really positive so I really.

Deane Michael Dray: And I realized I had asked a multi-part first question, so I'll just keep my follow-up very specific. Which of the end markets, of the positive and the negative, were the biggest swing factors? So, I think semiconductor, it sounded like, was one of the negatives, but what would you be highlighting? Well, I think, you know, for the quarter and really for the year, we anticipated a pullback in semiconductor orders, which kind of tracks the industry.

Deane Michael Dray: Feel very good about the traction that we hope to see on the new product side of course, the economy is always a bit of a wildcard, but even if the economy is a little bit sluggish in homebuilding and some of the contractor markets. These are going to be great products for many many years to come David I'll, Let you talk about the gross margin alright. Thank you.

Deane Michael Dray: You might remember that over the last couple years, we had a bunch of orders or a lot of backlog, and we've worked off a lot of that. I think we still have some backlog, but it's not what it was before. The pundits are all predicting that it's going to pick up in the latter half of the year. I guess we'll see. But that one really wasn't unexpected.

Deane Michael Dray: I was struck by some of the same.

Deane Michael Dray: But by the results we're in a pretty significant.

David M. Lowe: Here in North America, some of our salespeople have cited activity and projects coming down. The Europe-Middle East team has also called out good project activity, especially in the protective coating space. And, of course, the underlying stability in the price of oil probably helps demand in that way. Thank you. Thanks Dave.

Mark W. Sheahan: Those units did hold up the segments did hold up pretty well and.

David M. Lowe: I remain hopeful that we're going to see certainly on the on the pricing side continued respectable realization and we.

David M. Lowe: We track our input costs carefully and.

Operator: Thank you. One moment for questions. Our next question comes from Mike Halloran with Baird. You may proceed. Hey, good morning, everyone. Mike, too.

Michael Patrick Halloran: Kind of following up on this then, the order side and the end market commentary, I certainly understand the order strength that you've mentioned, Mark, through picking up through March-April. Is that optimism reflected in customer conversations, channel feedback, et cetera? You know, I suppose what I'm getting at here is you've got a relatively choppy backdrop kind of holistically, with a lot of moving pieces around a lot of different markets. There's a chance you can get more episodic demand trends month to month, you know. Curious therefore if you think there's a chance that that's part of what's going on and if there's anything in the channel that would support that, or is there just real synergy between what people are telling you and where the order rates are coming in and given where inventory levels are and everything?

Speaker Change: Well I think for the quarter and really for the year, we anticipated.

Speaker Change: Hey, good morning, everyone.

Mark W. Sheahan: Nick.

Mark W. Sheahan: So just kind.

Mark W. Sheahan: Kind of following up on this than the order side in the end market commentary I certainly understand the order strength that you mentioned mark through picking up to March April is that optimism reflected in customer conversations channel feedback et cetera.

Mark W. Sheahan: I suppose what I'm getting at here is you've got a relatively choppy backdrop kind of holistically with a lot of moving pieces around a lot of different markets.

Mark W. Sheahan: There is a chance you can get more episodic demand trends month to months.

Mark W. Sheahan: Most of them will launch here in Q2. For sure, by the end of Q2 is what our target plans are. That makes sense. And so does that essentially mean that in the front half, a little slower growth?

Mark W. Sheahan: Curious therefore, if you think there is a chance that that's part of what's going on and if theres anything in the channel that would support that or is there just real synergy between what people are telling you where the order rates are coming in and given where inventory levels are and everything.

Mark W. Sheahan: It's hard for us to really know exactly what's going on because we're in so many different markets around the world and a lot of different niches, but if I were to characterize.

Mark W. Sheahan: Even accounting for the, you know, two Qs, probably lower growth than the rest of the year is the thought process. Well, Q2, I think we will see the ramp-up on the new product side; we have seen, you know, at least for the first three weeks here, order rates that would indicate that we should see some decent business and perhaps even growth in Q2. Who knows, but it does feel better than it did, for sure, a couple of months ago.

Mark W. Sheahan: What we saw happening.

Mark W. Sheahan: Throughout the quarter, it's really as simple as it started off very slow and we started to see a pickup.

Mark W. Sheahan: There are some areas within the segments that are stronger than others. I think we tried to highlight I would say that.

Mark W. Sheahan: Is is still pretty weak.

Mark W. Sheahan: In particular, China is there's just not as much capital flowing into their the construction markets have been tough.

Mark W. Sheahan: We are starting to see a little bit of a pickup there in the container industry, where they are starting to build containers again, but thats not going to be enough to really change the game there and of course, China is like the big thing for our business in China is.

Mark W. Sheahan: Yeah, and I would add that the area that we are talking about primarily with the new products is the contractor channel, and of course, you've heard us say before that that's without a doubt our most developed, most sophisticated channel. The products have been presented to their buying and marketing organizations, and when those products are in fact launched, we'll be able to ship because they will want them in their product lineup for spring and summer projects. I really appreciate the help, everyone.

Mark W. Sheahan: Catches a cold everyone gets XL.

Mark W. Sheahan: All in all.

Mark W. Sheahan: I'm, probably more optimistic than pessimistic at this point, but we will see because we're we're not the greatest at forecasting these short cycle businesses.

Speaker Change: No that makes sense and then two more here one just the timing of some of these product launches are these gradual through the year or do.

Mark W. Sheahan: A lot of them start hitting in the second quarter.

Mark W. Sheahan: Most of them will launch here in Q2.

Mark W. Sheahan: For sure by the end of Q2 is what our target plans are at this point.

Michael Patrick Halloran: Thanks. Yep, thanks Mike. Thank you. One moment per question.

Operator: Our next question comes from Saree Boroditsky with Jeffrey's. You may proceed. Thanks. Good morning. So just sticking with contractors, I believe one of your major customers noted that spray equipment was actually up mid-single digits in the quarter. So could you just help us understand the difference there versus the decline you saw? Yeah, I think if it's always, "we don't really know" would be the quick answer, but I do believe that at the end of last year, there was some inventory build that they did with respect to our equipment. I think there's a difference between their out-of-the-door sales and what we saw for orders.

Saree Emily Boroditsky: And again, you know, as we kind of work through the end of the quarter, I think that dynamic has started to shift in our favor. And so I guess, just following up on that, inventory levels there, I guess, are normal at this point? Yep. And then I know the decrements in your business can be high when volumes are lower, but industrial margins declined probably more than we would have expected. So just any thoughts on what drove this and how we think about this trend for the remainder of the year? Yeah, part of it was mixed.

Saree Emily Boroditsky: I think we noted that our powder equipment business was actually up, and our legacy industrial businesses were down. And there is a difference in the margin rates of those two groups, those two categories. And then obviously, in addition to that, you know, we had different product mixes going on in different areas. And within our legacy businesses, there was a little bit of a ramp up in product development spending here in the first quarter because they're also going to be launching products here in Q2.

Saree Emily Boroditsky: You know, you mentioned these new products adding to sales starting in the second quarter, but could you just help size that opportunity, maybe looking at historical performance, when you put in a new product, especially in contractor, like what does that lead to from an output performance perspective? Yeah, we really don't get into details on how much incremental business we get from our new products, but we're happy with the investments generally, and they do drive incremental business for us. Of course, we have internal estimates that we use to justify a project and what we think the revenues might be.

Mark W. Sheahan: But to be honest with you, until they actually hit the market, we just really don't know. But I will just, you know, getting back to my comments earlier, I would say that this particular slate of new products that we have coming out in CED, and somebody who's been here for a long time, is pretty exciting and should move the needle if everything else stays. Great, thanks for the questions. Yep. Thank you. One moment for questions. Our next question comes from Joe Ritchie with Goldman Sachs. He may proceed. Thanks. Good morning guys. This morning,

Joseph Alfred Ritchie: So maybe just following on that new product discussion, I'm just curious when you think about this and it hitting the shelves of some of the big box channels, is there a stock-in effect that you're contemplating as well, or is this just, you would just expect end market demand for the product to be good? I mean, for sure, once we launch a product, if it's a good product, they're going to want to have it in stock. So there's going to be a stock in that that happens just naturally, particularly with respect to the CED products. But I also believe that these are some pretty smart people that run these businesses.

Mark W. Sheahan: And so they're not going to, you know, overstock; they're going to stock what they think that demand is going to be. So we might see a little bit of a bump, but then the sell-through for these products should be strong enough where I wouldn't expect to see a big pullback, let's say, later in the year because they did a big ramp-up, if that helps. Yeah, I would agree with that, and I would just add that the times that we experienced maybe over the last 18 months to two years when some of the large box stores ordered a little bit extra because they were, you know, fairly concerned about deliveries and supply chain challenges and such. That's not what we're talking about here.

Mark W. Sheahan: There won't be, there shouldn't be that effect now. We do have one really interesting product going into the home center that I can't talk about because we haven't released it yet. It's called Cordless Connect, where you can take a cordless drill and put an attachment on it and turn it into a paint sprayer.

Mark W. Sheahan: And we think that the home center is going to love it. And so that one was released recently. It's called Cordless Connect.

Joseph Alfred Ritchie: Thank you very much. All right. Thanks, Joel. Thank you. One moment for questions. Our next question comes from Matt Summerville with D.A. Davidson.

Mark W. Sheahan: That's also another tool that you would add that a contractor doesn't currently have access to today.

Mark W. Sheahan: X T, which is our new airless.

Mark W. Sheahan: Electric motor that Graco has designed and is built specifically for Airbus Sprayers, that's that's an upgrade.

Mark W. Sheahan: Taking an existing product and just making it better by putting that technology into it on that on the HP CF side of the equation the flooring units some of our protective coating units.

Mark W. Sheahan: Contractors are doing that work today, but we're bringing them a better tool to get the job done giving them variable ratio capability given their ability to.

Mark W. Sheahan: Get away from having to do some hand, mixing making them more productive and making them more efficient really everything that that group does in CBD when they launch a product is too.

Mark W. Sheahan: Bring more tools and a better experience to their customers when it comes to the materials that they got to apply.

Mark W. Sheahan: As a follow up.

Mark W. Sheahan: Can you sort of touch on whether or not youre seeing much in the way of any problem from a momentum standpoint, when it comes to your M&A funnel pipeline is actually an ability changed.

Mark W. Sheahan: Obviously, you are sitting here with $600 million in cash and practically no debt.

Mark W. Sheahan: So how should we kind of be thinking about capital deployment from here.

Matt J. Summerville: I feel pretty good about our pipeline I brought in M&A Guy a couple of years ago, and we've been working the pipeline hard the teams have been very thoughtful in the names that are on our list and we have been active in communicating our intentions with <unk>.

Matt J. Summerville: Some of the more substantial targets that we have.

Mark W. Sheahan: And we have been active in communicating our intentions with some of the more substantial targets that we have, in terms of what Graco is doing. I feel really good about our prospects. The market, You know, David, and Chris might have a better view of this. But from what I've read and what I've heard, the market for deals is a little bit more favorable now than it has been, at least over the last, you know, six to 12 months.

Matt J. Summerville: The.

Mark W. Sheahan: The proof is always getting getting the things done, but I do feel at least internally.

Mark W. Sheahan: <unk> like <unk> is doing I feel really good about our prospects.

Mark W. Sheahan: The market.

Mark W. Sheahan: David and Chris might have a better view of this but from what I've read and what I've heard the market for deals is a little bit more favorable now than what it has been at least over the last six to 12 months.

Mark W. Sheahan: Yeah, I would add, yeah, that's my impression talking with, you know, talking with our internal team, and cross-checking with some smart people on the outside. We see an increase in, I'll call it, marketing activity from teasers to blue books, and there's speculation out there, again, you guys think about this a lot more than I do, but there's speculation out there that where we are at in many private equity portfolios, where they're at in their cycle now, it's not unreasonable to expect them to bring some of their merchandise to market. And, of course, there's a lot more to it than that.

Mark W. Sheahan: I would add yes, that's my impression talking with.

Mark W. Sheahan: Talking with our internal team and.

Mark W. Sheahan: <unk> checking with some smart people on the outside.

Mark W. Sheahan: We see an increase in.

Mark W. Sheahan: I'll call it marketing activity from teasers to Blue books and their speculation out there again you guys think about this a lot more than I do but there is speculation out there that.

Mark W. Sheahan: We're at we are where we are at in many private equity portfolios were added in the cycle now.

Mark W. Sheahan: <unk>.

Speaker Change: It's not.

Mark W. Sheahan: Not unreasonable to expect them to bring some of their merchandise to market.

Mark W. Sheahan: Picture long term that could be an opportunity for us and also touching on our in our team and the work that the <unk>.

David M. Lowe: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. increased activity of reaching out and initiating contacts and relationships with companies directly. And, you know, that's really one of the important things we want this group to do. Not that there's anything wrong with auctions, but exclusive discussions can sometimes generate some very interesting opportunities.

David M. Lowe: Mark alluded to that they're doing.

David M. Lowe: Yes.

David M. Lowe: Okay.

David M. Lowe: With companies.

David M. Lowe: A directly and.

David M. Lowe: Thats been really one of the important thing is we want this group to do.

David M. Lowe: Not that there's anything wrong with auctions, but.

David M. Lowe: Exclusive discussions can sometimes generate some very interesting opportunities so.

Matt J. Summerville: So the proof is in the results, not in the good intentions, but I see what we're doing, and I think it is a series of steps in a good direction. Yeah, thanks Matt. Thank you. One moment for questions. Our next question comes from Jeff Hammond with KeyBank. You may proceed. Hey, good morning, guys. Hey Jeff.

David M. Lowe: The proof is in the results not in the good intentions, but I.

Jeffrey David Hammond: I see what we're doing and I think it is.

Jeffrey David Hammond: A series of steps in a good direction.

Jeffrey David Hammond: Thanks, guys.

Jeffrey David Hammond: Yep Thanks, Matt.

Jeffrey David Hammond: Thank you.

Jeffrey David Hammond: One moment for questions.

Jeffrey David Hammond: Hey, good morning, guys.

Jeffrey David Hammond: Just, just on, um... I guess the contractor seems to make the most sense in terms of new product introductions and timing, but anything you're seeing in terms of bigger orders or systems that would have gotten just pushed out from 1Q to 2Q, that would kind of lend itself to the weaker 1Q and maybe a better 2Q. Uh, nothing that comes to my mind.

Jeffrey David Hammond: I guess the contractor seems to make the most sense in terms of new product introductions and timing, but anything youre seeing in terms of bigger.

Jeffrey David Hammond: Bigger orders or systems that would've gotten just pushed out from <unk> to <unk>.

Jeffrey David Hammond: That would kind of lend itself to the weaker <unk> and maybe a better <unk>.

Jeffrey David Hammond: Nothing that comes to my mind and I guess, if you look at the overall backlog that we had as a company starting the year and where we ended up at the <unk>.

Mark W. Sheahan: I guess if you look at the overall backlog that we had as a company starting the year and where we ended up at the end of the quarter, it was up just slightly. And I think it was mostly due to the orders that came in at the end of the quarter. There were no ways really pushing out anything in terms of orders or systems, at least that I'm aware of.

Mark W. Sheahan: End of the quarter.

Mark W. Sheahan: Okay. And then, um... I guess within, I mean, you're saying low single digits, but, you know, given the slow start, is there any kind of bias within that? Or, you know, as you look at the regions, do you say, hey, North America and EMEA feel about right, and Asia feels weaker? Just any kind of, you know, change within that, just given the slow start? Well, I would just go back to kind of what I said before; for sure, our ability to forecast is handicapped a lot by the fact that we're a very short cycle business.

Mark W. Sheahan: Okay.

Mark W. Sheahan: And then.

Mark W. Sheahan: I guess within I mean, you're saying low single digits, but given the slow start there is there any kind of bias within that or as you look at the regions do you say, Hey, North America, and EMEA a feel about right.

Mark W. Sheahan: <unk> within that just given the slow start.

Mark W. Sheahan: And you know, any one region in a 13-week period could look really good. And then the next one, they may not look quite so good. The way I look at it, we're 13 laps into a 52-lap race, and we haven't changed the tires yet on the car.

Mark W. Sheahan: The way I look at it where were 13 lapse into a 50 to lap race and we haven't changed the tires yet on the car. So I think that there is plenty of year left here.

Mark W. Sheahan: All business units all regions are are pushing hard toward growth and we'll we'll do our best to make that happen.

Mark W. Sheahan: Just add if you take a look at the outlet the outlook chart with the colors on it you can get kind of a sense of where we see.

Mark W. Sheahan: So I think that there's plenty of year left here. All business units, all regions are pushing hard toward growth, and we'll, we'll do our best to make that happen. So, you know, some possibilities in that contractor space for all the reasons that Mark touched on. I'm hopeful that we will continue to see some respectable momentum in the European market, the EMEA market for contractors. And I think you can get a flavor for how we have equalized the colors in Asia Pacific. You know, you know, definitely concerns there across the board. We have some We do have some bright spots there, too.

Mark W. Sheahan: Our feeling okay about the opportunities with.

Mark W. Sheahan: Greenish in the industrial segment and in the Americas as well as I think some some some possibilities in that contractor space for all the reasons that mark touched on.

Mark W. Sheahan: Im hopeful that we will continue to see some.

Mark W. Sheahan: A respectable momentum in the.

Mark W. Sheahan: European market.

Mark W. Sheahan: EMEA market for contractor and I think you can get a flavor for how we have equalized the colors in Asia Pacific.

Mark W. Sheahan: <unk>.

Mark W. Sheahan: Definitely concerns there across the board.

Mark W. Sheahan: We have some we do have some bright spots there too but.

David M. Lowe: But the size of China and some of the things that we've seen in construction and industrial and in process markets and other things, you know, at least at the moment, at the 13th week lap, gives us a little more caution there than in other parts of the world. Okay, great. Thanks. Yep, thanks, Jeff. Thank you. And as a reminder, to ask a question, please press star 1 1 on your telephone. Our next question comes from Walt Liptak with Seaport Research. You may proceed. Hey, good morning, guys.

Walter Scott Liptak: The size of China.

Walter Scott Liptak: And some of the things that we've seen in construction and industrial and in process markets and other things.

David M. Lowe: <unk>.

Walter Scott Liptak: At least at the moment.

Walter Scott Liptak: At the 13th.

Walter Scott Liptak: We lap.

David M. Lowe:

Walter Scott Liptak: It gives us a little more caution there than in the other parts of the world.

Walter Scott Liptak: Okay, great. Thanks, guys.

Walter Scott Liptak: Thanks, Jeff.

Walter Scott Liptak: Thank you and as a reminder to ask a question. Please press star one on your telephone.

Walter Scott Liptak: Our next question comes from Walter Liptak with Seaport Research you May proceed.

Walter Scott Liptak: And thanks for the color on the monthly cadence. And I just want to follow up on that. You know, I think we kind of knew going into the quarter that things could be a little bit weaker in the comp, and it would be a little bit tougher. But, you know, is there something like a postmortem that you looked at and said, OK, you know, China was weaker or manufacturing was weaker in the US? And if you did that, what was it and why?

Walter Scott Liptak: Hey, good morning, guys.

Walter Scott Liptak: And thanks for the color on the monthly cadence.

Walter Scott Liptak: Just a follow up on that.

Walter Scott Liptak: I think we kind of knew going into the quarter that things could be a little bit weaker in the comp would be a little bit tougher but.

Walter Scott Liptak: Is there something like postmortem that you looked at and said okay.

Walter Scott Liptak: China was weaker or industrial was weaker in the U S.

Walter Scott Liptak: If you did that what was it.

Mark W. Sheahan: Well, I would kind of say what I think we said earlier, which is essentially that we started out slower than we thought we would, particularly in some of the industrial product categories and also some of the pumping equipment that goes into factories that we call process transfer equipment. These are like diaphragm pumps that have a lot of different applications, and that wasn't just limited to the Asia-Pacific region. That would, I would say, our expectations would have been higher for those product categories in all of the regions than what we actually experienced, and if you have an idea of what the cause of that is, send me a note because it just seemed like it was a general slowdown compared to what we thought we would have to start off the year.

Walter Scott Liptak: Hi.

Mark W. Sheahan: Well I would kind of say what I think we said earlier, which is essentially that we started out slower than we thought we would particularly in some of the industrial product categories and also.

Mark W. Sheahan: Some of the pumping equipment that goes into factories that we call process transfer equipment. These are like diaphragm pumps that have a lot of different applications and that wasn't just limited to the Asia Pacific region that was I would say our expectation would have been higher for those product categories in all other regions and what we actually.

Mark W. Sheahan: <unk>.

Mark W. Sheahan: Experienced and <unk>.

Mark W. Sheahan: You have an idea of what's the cause of that is semi.

Mark W. Sheahan: <unk> because it just seems like it just seemed like it was.

Mark W. Sheahan: A general slowdown compared to what we thought we would have to start off the year. The good news of course is that things seem to get more on firm footing here and.

Mark W. Sheahan: The good news, of course, is that things seem to be getting more on firm footing here, and as we kind of work through the quarter, things look a little bit better. Okay, yeah, that's great. And in Europe, the European numbers look pretty good considering everything in Europe. And so I wonder, was that related to the powder business? I think GEM out there is pretty strong.

Mark W. Sheahan: As we kind of work through the quarter things, a little bit better to us.

Speaker Change: Okay, Yes, that's great.

Mark W. Sheahan: And then in Europe, the Europe numbers.

Mark W. Sheahan: Pretty good considering everything.

Mark W. Sheahan: Europe, and so I wonder was that related to the powder business.

Mark W. Sheahan: I think Jim Arthurs pretty strong or are you seeing a different trend in Europe I think.

Walter Scott Liptak: Are you seeing a different trend in Europe, I think? You made some comments earlier as well. Well, we had some lift in Europe from the contractor side of the business. And we, I think, mentioned the protective coatings business; we called out the foam, all volunteers that the cell through the propane channel. I think those were probably the more positive pieces of the story. I'll call it in the other segments, on the industrial side. I think the market we characterize as being a bit more anemic. And, of course, in Europe, the powder equipment market is a larger percent of the industrial segment than in the other two regions.

Walter Scott Liptak: You made some comments earlier as well.

Walter Scott Liptak: But we had some lift in Europe.

Walter Scott Liptak: From the from the contractor side of the business and we I think mentioned.

Walter Scott Liptak: The protective coatings business, we called out the foam I'll volunteer that the sell through to the propane channel was seen as pretty good and I think those were probably the more the more positive pieces of the story.

Walter Scott Liptak: On the I'll call it in the in the other segments on the industrial side.

Walter Scott Liptak: I think the I think.

Walter Scott Liptak: The market, we characterize as being a bit more anemic.

Walter Scott Liptak: And of course in Europe.

Walter Scott Liptak: The powder market powder equipment market is a larger percent of the industrial segment than in the other and the other two regions and it was it was it was flattish for the period.

Mark W. Sheahan: And that was it, flattish for the period. And then in the process space, I think there we got off to a slow start, you know, channel orders that we were hoping to receive from the channel just weren't there. Okay, great. Thanks for that. The color on that.

Mark W. Sheahan: And then in the process space.

Mark W. Sheahan: I think there we got off to a slow start.

Mark W. Sheahan: Channel or orders that we were.

Mark W. Sheahan: <unk> received from the channel just just werent there at the beginning of the year.

Speaker Change: Okay, great. Thanks for that.

Walter Scott Liptak: And then maybe a last one for me, with the discussion of the new products, which I think is great, is there a new product spend that drops off in the second quarter, in the second half, once you get these new products? Not in a meaningful manner. Okay, great. Okay, thanks. Thank you. If there are no further questions, I will now turn the conference over to Mark Sheahan. Alright, well, thank you very much for participating today. That concludes the call, and have a good rest of your day. Thank you. This concludes our conference for today. Thank you all for participating, and have a nice day. All parties may now disconnect.

Speaker Change: The color on that and then maybe a last one for me with.

Mark W. Sheahan: A discussion of the new products, which I think is great.

Walter Scott Liptak: Is there a new products Ben.

Mark W. Sheahan: Off in the second quarter in the second half once you get these new products launched.

Mark W. Sheahan: Not in a meaningful manner.

Speaker Change: Okay, great. Okay. Thanks, guys.

Mark W. Sheahan: Thank you if there are no further questions I will now turn the conference over to Mark <unk>.

Mark W. Sheahan: Alright, well. Thank you very much for participating today that concludes the call and have a good rest of your day.

Mark W. Sheahan: Thank you. This concludes our conference for today. Thank you all for participating and have a nice day all parties may now disconnect.

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