Q2 2024 Graco Inc Earnings Call

July 25, 2024

Good morning, and welcome to the second 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 Graco Dotcom Graco has additional information available in a power Powerpoint slide presentation, which is available as part of that.

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

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 Security Litigation Reform Act.

Webcast player at the request of the company, who will open the conference up for question 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.

Remarks constitute forward looking statements for the purposes of the Safe Harbor provisions of the private Securities Litigation Reform Act actual results may differ materially from those indicated as a result of various risk factors, including those identified in item one a of the company's 2020 through annual report on Form 10-K and N.

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 reports on Form 10-Q. These reports are available on the company's website, www.graco.com, and on the SEC's website at www.sec.gov.

Item one a of the company's most recent quarterly reports on Form 10-Q.

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Dr. Greg <unk> Dot com and the Sec's website at Www Dot FCC Dot 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 our call. I'm here today with Mark Sheahan and David Lowe.

Looking statements reflect management's current views and speak only as of the time they are made.

<unk> undertakes no obligation to update these statements in light of new information or future events I will now turn the conference over to Chris <unk> Executive Vice President corporate controller.

Good morning, everyone and thank you for joining our call I'm here today with Mark Sheahan, and David Law I will provide a brief overview of our quarterly results before turning the call over to Mark for additional commentary yesterday Graco reported second quarter sales of $553 million a decrease of 1% from the same quarter last year.

Christopher Knutson: I will provide a brief overview of our quarterly results before turning the call over to Mark for additional commentary. Yesterday, Graco reported second quarter sales of $553 million, a decrease of 1% from the same quarter last year. Reported net earnings decreased 1% to $133 million, or $0.77 per diluted share. Excluding the impact of excess tax benefits from stock option exercises, adjusted non-GAAP net earnings were $132 million, or $0.77 per diluted share, an increase of 3%. The effect of currency translation had no significant impact on sales or net earnings for the quarter.

Christopher Knutson: The gross margin rate increased 230 basis points in the quarter, as realized pricing and lower product costs were more than enough to offset sales volume declines from the industrial and process segment. We had favorable factory volume and contract as we built inventory ahead of the new product introduction. Total operating expenses increased $5 million, or 4%, in the quarter, mainly due to $3 million associated with the relocation to a new distribution center and $2 million related to product development spending, growth initiatives, and other corporate items.

Ported net earnings decreased 1% to $133 million or <unk> 77 per diluted share excluding the impact of excess tax benefits from stock option exercises adjusted non-GAAP net earnings were $132 million or <unk> 77 per diluted share an increase of 3%.

Currency translation had no significant impact on sales or net earnings for the quarter.

The gross margin rate increased 230 basis points in the quarter.

Realized pricing and lower product costs were more than enough to offset sales volume declined from the industrial and process segments. We had favorable factory volume in contractor as we built inventory ahead of the new product introductions.

Total operating expenses increased $5 million or 4% in the quarter, mainly due to $3 million associated with the relocation to our new distribution center and $2 million related to product development spending growth initiatives and other corporate items gross margin rate improvement primarily in contractor was able to offset lower sales volume.

Christopher Knutson: Gross margin rate improvement, primarily in contractor, was able to offset lower sales volumes and increased expenses in the industrial and process segments during the quarter, resulting in an operating margin rate of 29%, an improvement of one percentage point from the same period last year. The contractor operating margin rate increased 4 percentage points to 31% compared to the second quarter last year. Interest and other decreased $1 million during the quarter, driven primarily by lower interest expense as our long-term debt is repaid in 2023. The adjusted effective tax rate was 20%, which is consistent with our expected full-year tax rate of approximately 19.5% to 20.5% on an as-adjusted basis.

<unk> and increased expenses in the industrial and process segments during the quarter, resulting in operating margin rate of 29% an improvement of one percentage point from the same period last year.

Contractor operating margin rate increased four percentage points to 31% compared to the second quarter last year.

Interest and other decreased $1 million during the quarter, driven primarily by lower interest expense as our long term debt was repaid in 2023.

The adjusted effective tax rate was 20%, 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 $258 million for the year, a decrease of $24 million from last year, driven mostly by timing of inventory purchases related to new product launches and lower net... Cash provided by operations as a percent of reported net earnings was 101% for the year. Significant year-to-date uses of cash include repurchases of 224,000 shares for $18 million, dividends of $86 million, and capital expenditures of $73 million, of which $47 million is related to facility expansion projects. These cash uses were offset by share issuances of $42 million.

Cash provided by operations totaled $258 million for the year, a decrease of $24 million from last year, driven mostly by timing of inventory purchases.

<unk> to new product launches and lower net earnings.

Cash provided by operations as a percent of reported net earnings was 101% for the year.

Significant year to date uses of cash include repurchases of 224000 shares for $18 million dividends of $86 million and capital expenditures of $73 million of which $47 million related to facility expansion projects. These.

These cash uses were offset by share issuances of $42 million.

Christopher Knutson: A few comments as we look forward to the second half 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 or 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 10. I'll now turn the call over to Mark for further segment and regional commentary. Thank you, Chris.

A few comments as we look forward to the second half 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 or net earnings for the full year.

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 10.

I'll now turn the call over to Mark for further segment and regional commentary.

Mark W. Sheahan: Good morning, everyone. All my comments this morning will be on an organic constant currency basis. Sales in the second quarter were below expectations. Contractor performed well, but weakness in process and industrial more than offset that growth. However, Contractor had record sales in the quarter on strong demand globally for new products.

Thank you Chris Good morning, everyone. All my comments this morning will be on an organic constant currency basis.

Sales in the second quarter were below expectations contractor performed well that weakness and process and industrial more than offset that growth.

Contractor had record sales in the quarter on strong demand globally for new products.

Mark W. Sheahan: Asia Pacific continued to experience deteriorating demand in the quarter with noted declines across many key product categories, including semiconductor sealants and adhesives and industrial lubrication. Incoming order rates in Asia Pacific for both the industrial and process segments were down double digits, and we expect that current conditions will remain for the balance of the year. Despite lower sales, our profitability remains strong, our factories performed well, and we're seeing good price realization, which led to an improved gross margin rate in the second quarter.

Asia Pacific continued to experience deteriorating demand in the quarter with noted declines across many key product categories, including semiconductor sealants and adhesives and industrial lubrication.

Incoming order rates in Asia Pacific for both the industrial and process segments were down double digits and we expect that current conditions will remain for the balance of the year. Despite lower sales our profitability remains strong our factories performed well and we're seeing good price realization, which led to an improved gross margin rate in the second quarter.

Companywide operating margins were also higher as our teams have done a good job managing their spending during what is shaping up to be a challenging revenue environment consolidated operating profit margin was up nicely in the quarter and all segments were at or greater than 29%.

Mark W. Sheahan: Our consolidated backlog has now returned to pre-COVID levels, except for the powder coating business, which remains slightly elevated. Now turning to some commentary on our segment. Contractor sales rebounded nicely in the second quarter, growing by 6% when compared to last year. Year-to-date sales in the contractor segment are now flat, erasing the deficit that we saw in the first quarter.

Our consolidated backlog has now returned to pre COVID-19 levels.

Except for the powder coating business, which remains slightly elevated.

Now turning to some commentary on our segments.

Contractor sales rebounded nicely in the second quarter growing by 6% when compared to last year and year to date sales in contractor now flat erasing the deficit that we saw in the first quarter, our new products are being well received by customers everywhere, but North America was particularly strong with 9% sales growth in the quarter.

Mark W. Sheahan: Our new products are being well-received by customers everywhere, but North America was particularly strong with 9% sales growth in the quarter. Asia Pacific was another bright spot in the container market, which started to improve after minimal activity last year. The positive momentum created by our new products is encouraging, and with additional products launching in the second half of the year, we remain cautiously optimistic that Contractor will post growth for the full year. Operating margins in Contractor remain strong at 31% for the quarter and 30% for the year. Improved operating performance and lower input costs drove the increase despite higher new product development spending. The industrial segment declined 4% during the quarter.

Asia Pacific was another bright spot in the container market started to improve after minimal activity last year.

The positive momentum created by our new products is encouraging with additional products launching in the second half of the year, we remain cautiously optimistic that contractor will post growth for the full year.

Operating margins in contractor remained strong at 31% for the quarter and 30% for the year improved operating performance and lower input costs drove the increase despite higher new product development spending.

The industrial segment declined 4% during the quarter overall, we are seeing less project activity in many geographies and we believe that there is excess manufacturing capacity in parts of Asia Pacific.

Mark W. Sheahan: Overall, we're seeing less project activity in many geographies, and we believe that there is excess manufacturing capacity in parts of Asia Pacific. Growth in North America came primarily from backlog reduction and pricing, which was not enough to offset weak results in Asia-Pacific, particularly China.

Growth in North America came primarily from backlog reduction and pricing, which was not enough to offset weak results in Asia Pacific, particularly China. There is also a slowing of activity and end markets, which have been strong the past couple of years, such as solar and battery.

Mark W. Sheahan: There is also a slowing of activity in end markets, which have been strong for the past couple of years, such as solar and batteries. In EMEA, activity has slowed, with some projects either being delayed or shifted to future quarters. We expect the operating environment in both EMEA and Asia-Pacific to remain tough for the remainder of the year. However, despite volume declines, operating margins for the quarter improved sequentially and were flat with last year, reflecting favorable price and cost dynamics. Moving on to the process segment, sales were down 9% compared to the same quarter last year, with declines in all regions.

In EMEA up activity has slowed with some projects either being delayed or shifted to future quarters. We expect the operating environment in both EMEA and Asia Pacific to remain tough for the remainder of the year.

Despite volume declines operating margins for the quarter improved sequentially and were flat with last year, reflecting favorable price and cost dynamics.

Moving onto the process segment sales were down 9% compared to the same quarter last year with declines in all regions.

Mark W. Sheahan: Vehicle services and environmental equipment sales were positive for the quarter, but they were not enough to offset the broad-based weakness in our industrial lubrication, process transfer equipment, and semiconductor businesses. We expect softness to continue in both EMEA and Asia-Pacific, particularly in the semiconductor and mining markets for the rest of the year. Moving on to the outlook, our first half results were below expectations in our industrial and process segments. The strengthened contractor will not be enough to offset this.

Vehicle services and environmental equipment sales were positive for the quarter, but they were not enough to offset the broad based weakness in our industrial lubrication process transfer equipment and semiconductor businesses.

We expect softness to continue in both EMEA and Asia Pacific, particularly in the semiconductor and mining markets for the rest of the year.

Moving on to the outlook, our first half results were below expectations in our industrial and process segments. The strength in contractor will not be enough to offset this so we are lowering our full year 2024 guidance to a low single digit revenue decline on an organic constant currency basis.

Operator: So we are lowering our full year 2024 guidance to a low single-digit revenue decline on an organic constant currency basis. While overall economic conditions are challenging, we continue to invest in our growth strategies, and we'll manage the business for the long term. That concludes our prepared remarks. Operator, we're ready for questions. Thank you. The question and answer session will begin at this time. To ask a question, you will need to press star 11 on your telephone and wait for a name to be announced.

While overall economic conditions are challenging we continue to invest in our growth strategies and we will manage the business for the long term.

That concludes our prepared remarks, operator, we're ready for questions.

Thank you. The question answer session will begin at this time to ask a question you will need to press star one on your telephone and wait for them to be announce the questions will be taken in order that it has received twist on by for your first question.

Operator: Your questions will be taken in order that they are received. Please stand by for your first question. Our first question comes from the line of Deane Dray from RBC Capital Markets. Please state your question. Thank you. Good morning, everyone. Good morning, Dean.

Okay.

Our first question will come from the line of Dan <unk> from RBC capital markets. Please state your question.

Thank you and good morning, everyone.

Alright, Dan Randy.

Mark W. Sheahan: Mark, we typically start with key end markets and geographies, and I think most of your prepared remarks address those. But if you just kind of step back and say, what are the biggest needle movers and changes since last quarter in geography and end markets? Which ones are bubbles to the top?

Hey, Mark.

Typically start with key end markets and geographies and I think most of your prepared remarks address those but if you just kind of step back and say what are the biggest needle movers and changes since last quarter.

And geography, and end markets, which ones are bubble up to the top it sounds like China.

Mark W. Sheahan: It sounds like China deteriorated the most, but you just, if you could frame that for us for starters, that'd be helpful. Yeah, I think for sure we saw less business activity in the industrial and process segments. And I would characterize it as really across multiple industries, kind of a general slowdown. I called out a couple of ones that have been particularly hot for us the last couple of years, being semiconductors and batteries. But, you know, that's just related to some project activity that didn't materialize.

Deteriorated the most but just if you could frame for us that for starters that'd be helpful.

Yes, I think for sure we saw less business activity in the industrial and the process segments that I would characterize it is really across multiple industry. It's kind of a general slowdown I called out a couple of ones that have been particularly hot for us the last couple of years being semiconductor and battery but.

That's just related to some project activity that didn't repeat in long term I still think those are really good markets for graco.

Mark W. Sheahan: And, you know, long term, I still think those are really good markets for Graco. So I would characterize it as a general decline. Asia Pacific was weak, but as you know, China is a big chunk of it for us.

So I would characterize as a general decline.

Asia Pacific was weak, but as you know China is a big chunk of it for us in China in particular has been weaker than what we had hoped it would be when I look at the incoming order rates and the levels of activity in Asia Pacific they've been pretty consistent in terms of absolute levels when compared to last year, but.

Mark W. Sheahan: And, you know, China in particular has been weaker than we had hoped it would be. When I look at the incoming order rates and the levels of activity in Asia Pacific, they've been pretty consistent, you know, in terms of absolute levels, when compared to last year, but they are not when compared to last year, but based on, you know, what we've seen year to date, but when compared to last year, you know So Europe's hung in there, okay, they started to see a little bit of softness here in Q2, but, you know, pretty confident in the team there and what they're accomplishing. They've still got good project activity that they're looking at, and we'll just see how the rest of the year plays out. That's really helpful.

Alright, not when compared to last year, but based on what we've seen year to date, but when compared to last year.

Lower than what we had which was.

Orders were much higher in particular in some of those industries I mentioned so.

Europe has hung in there okay. They started to see a little bit of softness in here in Q2, but.

Pretty confident in the team there and what they're what they're accomplishing they still got good project activity that they are looking at and we'll just see how the rest of the year plays out.

That's really helpful and if I.

David M. Lowe: If I could just ask a little bit of granularity, Dean, for you. If we look at the markets that have a positive tilt toward them, think North America, I guess Mark touched on several of them, I would call out some of the markets we talked about last quarter, e-mobility. D-Fab, Packaging. Some of the markets that disappoint. Wind, window, and door, wood products generally, even a little bit of Ag, and, of course, Mark touched on semiconductors and said, Got it.

Go ahead, Jeff.

It's a little bit of granularity.

Dean for you.

If we look at the markets that have a positive tilt toward them think North America, I guess mark touched on several of them I would call out some of the markets, we talked about last quarter E mobility.

Defense Aerospace packaging.

Some of the markets that disappoint.

When window and door wood products generally.

Appliance or even a little bit of AG and of course, mark touched on semiconductor and mining.

Got it that's helpful and can we put the spotlight on the new product introductions this quarter.

David M. Lowe: That's helpful. And can we put the spotlight on the new product introductions this quarter? I've heard descriptions of some of them, especially at the entry level for spray paint finishing and the big box.

Heard descriptions of some of them, especially at the entry level for spray paint, finishing and the big box.

Mark W. Sheahan: Sounds exciting. But can you size for us the contribution? And is there an impact on channel fill?

Citing but can you size for us the contribution.

And is there an impact on a channel fill and then you also suggested there was more coming in the second half could you just kind of size for us the expectation there too. Thanks.

Mark W. Sheahan: And then you also suggested there was more coming in the second half. Could you just kind of size for us the expectation there too? Thanks. Yeah, I think it's hard for us to give you like actual dollars, but we're seeing really good growth in the new products that we launch. So some of them include our new extreme torque sprayers, which have the Graco design motor and Graco manufactured motor included in them.

Yes, I think it's hard for us to give you like actual dollars, but we're seeing really good growth.

Mark W. Sheahan: They're quieter, and they have better performance than our old models that use more, I'll call it an "off the shelf" type of motor. We have a cordless connect product that's doing well in the home centers. It's a product where you can connect it to a cordless drill or an impact driver, and you turn it into a paint sprayer.

And the new products that we launch but some of them include our new extreme torque sprayers, which have the graco designed motor and Greg manufactured motor included in them.

Quieter and they have better performance than our old models that use more I'll call. It an off the shelf type of a motor.

We have a cordless connect product that's doing well in the home centers, it's a product where you can connect it to a cordless drill are and impact driver and you turn it into a paint sprayer that really resonates with the DIY customer and so I would say sales there have been have been great as well and then I will mention our quick shot product, which we launched last year is it.

Mark W. Sheahan: That really resonates with the DIY customer, and so I would say sales there have been great as well. And then I will mention our quick shot product, which we launched last year and which has remained extremely strong. And you'll probably remember that that's a solenoid actuated gun versus a mechanically actuated gun.

<unk> extremely strong.

And you'll probably remember that Thats, a solenoid actuated guide versus the mechanically actuated gun and customers really like it. It's lightweight it's affordable it's really good for small jobs. So for sure. The combination of those products have really helped contribute to the growth. We saw here in the quarter, particularly in North America.

Mark W. Sheahan: And customers really like it. It's lightweight, it's portable, and it's really good for small jobs. So you know, for sure, the combination of those products really helped contribute to the growth we saw here in the quarter, particularly in North America. We do have some products coming out in the back half of the year that we're excited about, and we're not going to get into a lot of the details on what those are, but I think they are needle movers as well.

We do have some products coming out on the back half of the year that we're excited about getting into a lot of the details on what those are I think they are needle movers as well and that really kind of bled into the outlook that we've got which I would call. We're looking for growth in CD and I think it'll be tougher for the other businesses this year.

That's good and just can you is there a channel fill impact on these new product introductions.

Mark W. Sheahan: And that really kind of bled into the outlook that we've got, which I would call looking for growth in CED. And I think it'll be tougher for the other businesses this year. That's good. Is there a channel fill impact on these new product introductions? Yeah, I'd say that there sure is.

Yes, I would say that sure there is but I think the sell through has been really well for all of these things it's not like they're sitting on inventory they are placing orders every week.

Mark W. Sheahan: But I think the sell-through has been really well for all these things. It's not like they're sitting on inventory; they're placing orders every week. Great. Thank you. Yes. Thank you.

Great. Thank you yep.

Thank you one moment our next question.

And our next question comes from the line of Mike Halloran from Baird. Your line is open.

Operator: One moment for our next question. Our next question comes from Mike Halloran from Baird. Your line is open. Hey, morning everyone.

Hey, good morning, everyone.

Right.

So just following up on <unk> question, a little bit to start out with.

Michael Patrick Halloran: Hey Mike, just following up on Deane's question a little bit to start out with, you know, I know the old guide had some element of decent orders towards the end of the quarter or towards the end of the first quarter, expectation for that to roll through, and therefore some improving underlying demand. But if you were just to take a step back, how much of the guidance cut is just because we didn't see things improve the way we thought versus actual deterioration? I mean, I'm looking more qualitative versus quantitative, so. Any help there would be appreciated. Yeah, I think it's more of the latter.

I don't know the old guide had some element of decent orders towards the end of the quarter.

Towards the end of the first quarter expectation for that to roll through and therefore, some improving underlying demand.

As you were just to take a step back how much of the guidance cut is just we didn't see things improve the way we thought.

Actual deterioration.

And look more qualitative versus quantitative so.

Any help there would be great. Yes, I think it's more of the latter I think that.

Mark W. Sheahan: I think that we may have gotten ourselves a little bit excited at what we saw toward the end of the quarter. In Q1, of course, I always tell people, hey, it's 13 weeks. So, you know, you don't want to throw in the towel after 13 weeks.

We may have gotten ourselves a little bit.

Excited at what we saw towards the end of the quarter.

Q1 of course, I always tell people Hey, it's 13 weeks so.

You don't want to throw in the towel after 13 weeks and based on what we saw we felt like our low single digit.

Both.

Mark W. Sheahan: And based on what we saw, we felt like our most single-digit growth, the guide was appropriate, but we really didn't see that sustain itself and materialize into more growth than in those two segments that I talked about and got to the point where we felt like a change in our full-year guide was appropriate. So is it fair to say then that trends are just kind of choppy week to week, or month to month, or whatever you think about it, but the net trend that you saw through the front half of the year, maybe even through July, just really hasn't changed all that much trajectory-wise if you add it all up? Or do you think that there's been something different relative to that?

Guide was appropriate, but we really didn't see that sustained itself and materialize into more growth and really in those two segments that I talked about.

Got to the point, where we felt like a change in our full year guide was appropriate.

So is it fair to say then trends or just kind of choppy week to week or month to month, or however, you think about it but the net trends that you saw through the front half of the year, maybe even into July just really haven't changed all that much trajectory wise.

It all up or do you think that there is.

Something different relative to what I just said.

Mark W. Sheahan: Yeah, other than contractors, which obviously did change a little bit to the favorable side in the second quarter, I would say with regard to industrial businesses, yes, I think it's kind of a sluggish environment. Yeah, there's business out there, there's projects that are happening, but the level of activity and the level of capital investment that we're seeing and, you know, factories around the world has been, you know, markedly less than what we saw a year ago.

Rather than contractor, which obviously they did change a little bit to the favorable side on the second quarter I would say with regard to the industrial businesses, Yes, I think it's kind of a well.

I wish environment, Yes, there is business out there there is projects that are happening, but at the level of activity and the level of capital investment that we're seeing in factories around the world has been market.

Markedly less than what we saw a year ago, and that's what's showing up in our numbers.

Thanks, and then just generic margin question as we think to the back half of the year.

Mark W. Sheahan: And that's what's showing up in our numbers. Thanks. And then just generic margin questions, we think about the back half of the year, you know, front half run rate, anything we can't take to the front from the front half run rate on margins and apply to the back half, mixed variance. Some pressures you're seeing or some tailwinds, just any way to think about how to think about the margin trajectory across the segment in the back.

<unk> have run rate anything we can't take the front from the front half run rate on margins and applied to the back half mixed variance some.

Pressures, you're seeing are some tailwind so just any way to think about how to think about the margin trajectory across the segments in the back half I would call it pretty stable, but I'll, let Chris give some insight on that.

Christopher Knutson: I'd call it pretty stable, but I'll let Chris give some insight on that. I would say the same. There's really been not a lot of one-time items outside of what we called out in the relocation of the distribution center that won't recur. When you're thinking about the margin side, it's all volume.

I would say the same with theirs.

Not a lot of onetime items outside of what we called out in the relocation of a distribution center that won't recur when youre thinking about the margin side. It's all volume dependent so if we see volume where we're at today, we should be okay, but if we see any further decline. That's when you could start seeing some impact on both the operating and the gross margin line, Yes I would.

David M. Lowe: So if we see volume where we're at today, we should be okay. But if we see any further decline, that's when you could start seeing some impact on both the operating and the gross market. Yeah, I would just add, this is David. I would just add that I'm glad you asked a margin question.

Just add this is David I would just add that I'm glad you ask the margin question.

That the.

Performance from factory has been very good I think mark Mark touched on the spending side, which is strong but I also would like to call out the commercial organization.

David M. Lowe: The performance from the factory has been very good. I think Mark touched on the spending side, which is strong. But I also would like to call out the commercial organization. The price realization has been real, and it's been consistent across all the businesses and all the regions, and we think that's very sustainable. Great. I really appreciate the call.

Price realization has been real.

And it's been consistent across all of the businesses in all the regions and we think that's very sustainable.

Great really appreciate the color. Thank you.

Operator: Thank you. Thanks, Mike. Thank you.

It's Mike.

Thank you one moment for our next question.

Our next question comes from the line of salary or Jetski from Jefferies. Your line is open.

Operator: One moment for our next question. Our next question comes from the line of Saree Boroditsky from Jeffries. Your line is open.

Saree Emily Boroditsky: Hi, thanks for taking the question. So just building off your last commentary, you talked about the level of factory investment being lower globally. What do you need to see to improve demand there? Like what should we be watching for sales to inflect positively? Well, I think it's more macro. I don't think it's a Graco specific product problem.

Hi, Thanks for taking the question.

Let me Mark your last commentary you talked about the level of staffing and investment being lowered globally, what do you need to see to improve demand there what should we be watching for sales to inflect positively.

Well I think it's more a macro I don't think its a great goal as specific product problem of course, we get are.

Mark W. Sheahan: Of course, we got our, you know, ear to the street on this topic. We watch other people; we see what they're experiencing. We talk to our salespeople; they're working with our end users every day. So I think it's sort of an adverse macro condition. If you look at the data, it really doesn't matter what geography you look at; most of the end markets are flashing signs of, you know, either neutral or negative at this point, with the hope that there'll be a pickup in 2025. And we're hopeful that that happens.

Year to the street on this topic, we watch other people, we see what they're experiencing we talked to our salespeople. They are working with our end users every day. So I think it's sort of adverse macro conditions. If you look at the.

Data really doesn't matter what geography, you look at most of the end markets are flashing signs of either neutral or negative at this point with expectations are that there'll be.

Mark W. Sheahan: I'd say that there is fairly low capacity utilization across most of the factories. A lot of people added stuff over the last few years to react to all the supply chain issues they were experiencing. And now they're playing catch-up a little bit with those investments. It's not like they're not doing anything.

I'll pick up in 2025, and we're hopeful that that happens I would say that there is fairly low capacity utilization across most of the factories a lot of people added stuff over the last few years to react to all the supply chain issues. They were experiencing and now they're playing catch up a little bit with what those investments it sounds like they're not doing anything but.

Speaker Change: A big incremental opportunities out there of course, the high interest rate environment that we're in gives people other places where they can park cash and maybe theres some of that that's happening as well, but thats could be leading to lower investment as well.

Mark W. Sheahan: But, you know, in terms of big incremental opportunities, they're not there. And, you know, that's causing some delays as well. So I think it's kind of a general slow sluggish environment that we're operating in.

Speaker Change: And we have seen in some cases, some project delays the projects aren't going away, but people are saying hey, let's.

Speaker Change: Hold off for now and we still want to do the project like a powder system for example.

It may get pushed out by a few months.

Mark W. Sheahan: And I'm pleased that in this environment where the top line is challenging, as I said, the company is doing well. I mean, we were performing well, operationally, we're ready to go, and orders do pick up. There will be really nice, nice things that we put in place here to be able to capitalize on that when it happens. Are there any particular industries that you're seeing push out projects? I think in some of the powder applications that we've seen, you know, maybe some of the construction areas where we do work with vertical lines, you know, putting powder on the vertical lines.

Speaker Change: It's causing some some delays as well so I think it's kind of a general slow sluggish environment that we're operating in and I am pleased that in this environment, where top line is challenging as I said the company is doing well, we're performing well operationally we are ready to go and orders do pick up.

Speaker Change: There will be really nice.

Nice things that we put in place here to be able to capitalize on that when that happens.

Speaker Change: Are there any particular industries that are you seeing a push out projects.

Speaker Change: I think in some of the powder.

Speaker Change: Applications that we've seen.

Speaker Change: Some of the construction area, where we do work with vertical lines.

Speaker Change: <unk> powder under vertical lines automotive would be another one where they are in the battery production area, where people are maybe taking a step back and reevaluating their longer term capital plans and putting.

Mark W. Sheahan: Automotive would be another one where, you know, they're in the battery production area where people are maybe taking a step back and reevaluating their longer-term capital plans and putting a slowdown on that. And then solar energy would be another one that I would say has been pushed out. And then lastly, you mentioned parking cash, so maybe we could talk through how you're thinking about the optimal balance sheet for Graco. You know, we really have no debt to pay down, so how are you thinking about continuing to build cash? Thank you.

Speaker Change: Slow down on that and then solar energy would be another one that I would say has been pushed out a bit.

Speaker Change: And then lastly, you mentioned parking cash so maybe you could talk through how you're thinking about the <unk> balance sheet for Greg and I have no debt to pay down really so how are you thinking about continuing to build cash. Thank you.

Speaker Change: Yes, we would definitely like to deploy cash flow, we're pretty smart about it we've gone through a significant capacity expansion here at the company. It puts us in great shape for at least the next 10 years I think in terms of our ability to absorb organic growth within the businesses.

Mark W. Sheahan: Yeah, we would definitely like to deploy cash, but we're pretty smart about it. We've gone through a significant capacity expansion here at the company. It puts us in great shape for at least the next 10 years, I think, in terms of our ability to absorb organic growth within the businesses. And with respect to the cash that we have on the balance sheet, our top priority would be to find good strategic acquisitions to acquire companies that we think we can add some value to and that can drive our growth higher than what we've done historically, which has really been primarily organic over the last five years or so. Of course, we can also look to share repurchases. We did some of that here in Q2.

Speaker Change: And with respect to the cash that we have on the balance sheet, our top priority would be to find good strategic acquisitions to acquire companies that we think we can add some value to and they can drive our growth higher than what we've done historically, which has really been primarily organic.

Speaker Change: Back over the last five five years or so.

Speaker Change: Of course, we can also look to share repurchases. We did some of that here in Q2, we're not out of the.

Mark W. Sheahan: We're not out of the business of doing long-term strategic buys. I think that's another use of our cash. Good to hear. Thank you so much for the questions.

Speaker Change: Out of the business of doing that long term strategic buys I think that's another use of our of our cash.

Good to hear thank you so much for the question.

Speaker Change: Yes.

Speaker Change: Thank you one moment for our next question.

Operator: Thank you. One moment for our next question. Our next question comes from Bryan Blair from Oppenheimer. Your line is open. Thank you. Good morning, everyone. Bryan?

Speaker Change: Our next.

Speaker Change: Question on <unk>.

Speaker Change: Ian Blair from Oppenheimer. Your line is open.

Ian Blair: Thank you good morning, everyone.

Speaker Change: Hey, Brian and Brian.

Bryan Francis Blair: Hi Bryan. Now, we just had a nice segue there into discussing your M&A pipeline. We tend to ask every quarter, and I think it's appropriate given Graco's market position, balance sheet enhanced focus in that area for the last couple of years. But I guess particularly relevant now, we have seen an inflection in the electivity of late. There seems to be a lot of confidence in and actionability for Industrial Assets going forward.

Speaker Change: I just had a nice segue there too.

Speaker Change: Discussing your M&A pipeline.

Speaker Change: We tend to ask every quarter and I think it's appropriate given great.

Speaker Change: Great.

Speaker Change: Our market position and balance sheet.

Speaker Change: <unk> focus in that area for the last couple of years.

Speaker Change: I guess, particularly relevant now and we have seen an inflection.

Speaker Change: All activity of late there seems to be a lot of confidence in.

Speaker Change: And action ability.

Speaker Change: For industrial assets going forward and I'm curious if that applies to your team as well whether they're means.

Bryan Francis Blair: I'm curious if that applies to your team as well, whether there's meaningful momentum in your deal pipeline and any shift, quarter by quarter, that you would call on. Yeah, I'd call it a couple things. I mean, obviously, I brought in Inga Grasdahl a couple years ago to help our teams build out their pipelines.

Speaker Change: A meaningful momentum in.

Speaker Change: In your deal pipeline and any any shift quarter by quarter that you would call it.

Speaker Change: Yes, I'd call. It a couple of things I mean, obviously I brought in <unk> a couple of years ago to help our teams build out the pipelines I think I may have mentioned before but I'll mention it again that a couple of years ago I could have asked people for names and who is on their target list and they would have given me a list, but there really wasn't a whole lot of work done betting the list.

Mark W. Sheahan: I think I may have mentioned before, but I'll mention it again, that a couple years ago, I could have asked people for names and who was on their target list, and they would have given me a list, but there really wasn't a whole lot of work done vetting the list, understanding the strategic fit, knowing the size of the company, and, you know, having a strategy for what we would do if we were to acquire them Plus, there weren't a whole lot of connections that were taking place between our people and those companies, mostly because we've been more focused on organic growth.

Speaker Change: Adding the strategic fit knowing the size of the company.

Speaker Change: And having a strategy for what we would do if you acquire them plus there wasn't a whole lot of connections that were taking place between our people and those companies and mostly because we've been more focused on organic growth. So we're going through that process of creating what I'll call a fairly well thought well vetted pipeline.

Mark W. Sheahan: So, we're going through the process of creating what I'll call a fairly well-thought out, well-vetted pipeline. We have more than 100 companies in that pipeline today. We're having active discussions with the ones that are real prospects, and I would say that you're right, it feels to us like the market has gotten a little bit better than it was, you know, even six months ago. Valuations are still high for good businesses, but they are closer to the range today that we would be interested in.

Speaker Change: Have more than 100 companies in that pipeline today, we're having active discussions with the ones that are that are real prospects and I would say that youre right. It feels to us like the market has gotten a little bit better than what it was.

Mark W. Sheahan: You know, without telling you specifically about what we're doing, I do feel like my confidence level and our ability to actually execute our M&A strategy have gone up substantially over the last two years, and I am hopeful that we will see some activity here as we work through the balance of this year. Yeah, I'd just like to underline Mark's comments about, yes, there is a larger target list than there was before, and yes, there are conversations going on on an ongoing basis with principals and bankers and other people who are close or owners of businesses that could be of interest to you. In talking with INGA, I would say there is merchandise available.

Speaker Change: Even six months ago.

Speaker Change: Valuations are still high for good businesses, but they are closer to the range today that we would be interested in without telling us specifically about what we're doing I do feel like.

Mark: Our my confidence level in our ability to actually execute our M&A strategy has gone up substantially over the last two years I'm hopeful that we will see some activity here as we work through the balance of this year and into 2025, yes, I'd just like to underlying Mark's comments about yes. There is.

Speaker Change: <unk>.

Speaker Change: A larger target list than there was before and yes, there are conversations going on.

Speaker Change: On an ongoing basis with principals and bankers and other people who are.

Speaker Change: Close or owners of businesses that could be of interest to us.

Speaker Change: And talking with anger I would say there is.

Speaker Change: There is merchandise available.

Speaker Change: There are clearly some properties that are being held back.

David M. Lowe: There are clearly some properties that are being held back due to maybe expectations that were created a couple, three years ago, and some private equity owners also have to sell properties that may be low or multiples or hold on for a couple more years to drive them to the next level. To just put a point on Mark's comments, INGA has estimated that over this last year, year and a half time frame where we've been talking about this, inflation has moderated, say one and a half to two turns.

Due to maybe expectations that were created a couple of three years ago and.

Speaker Change: Some again, some private equity owners also.

Speaker Change: Have to sell properties that may be lower multiples or a hold on for a couple more years to drive them to the next level.

Speaker Change: Just put a point on Mark's comments.

Speaker Change: India has estimated that maybe multiples over the last this last year year, and a half timeframe, where we've been talking about this have moderated say, one and a half to two times. So I think while there is plenty of variation around the mean and you see that in some of the transactions that go.

David M. Lowe: So, I think while there is plenty of variation around the mean, and you see that in some of the transactions that go on in these niche industrial markets, I think it leans us towards an expectation that, you know, low to mid-teen range returns are closer to normal than we saw two or three years ago. That's extremely helpful, Cohen, and encouraging, too, here. Looking at your Asia-Pac, Demand Mosaic.

Speaker Change: One in these niche industrial markets I think it leans us towards an expectation that low to mid teen range for tons.

Speaker Change: Is closer to normal than we saw two or three years ago.

Speaker Change: That's extremely helpful color.

Speaker Change: <unk> two.

Speaker Change: Tahira.

Speaker Change: Looking at your.

Tahira: Asia Pac.

Mark W. Sheahan: The solid red is industrial and process. That pretty easily explains capital spending or lack thereof. Contractor stepping up to more of a neutral outlook is encouraging, given the overall backdrop. Mark, did you say that it's largely driven by the container market? Did I hear that correctly?

Tahira: Demand mosaic, the solid red industrial and process.

Tahira: <unk> pretty easily explained.

Speaker Change: Capital spending or lack thereof.

Tahira: Contractor.

Tahira: Yes.

Tahira: Stepping up to more more of a neutral outlook.

Tahira: Is encouraging given the overall backdrop.

Speaker Change: Did you say that.

Speaker Change: Largely driven by the container market.

Mark W. Sheahan: Yeah, that's correct. Yeah, shipping containers. Okay, is that the primary factor, or are there other? other call outs. Yeah, that's, I think the primary driver of what we see in China. For Asia, the other significant market is Australia, and they were off to a slow start.

Speaker Change: Yes, great question.

Yes, that's correct, yes, the ship shipping containers.

Speaker Change: Okay.

Speaker Change: The primary factor or are there other.

Speaker Change: Other call outs now yes.

Mark W. Sheahan: In the first quarter, we've seen a little bit of a pickup as we've gotten through the first half of the year, and we're hopeful that that team can deliver for us in the second half of the year. Okay, understood. Thanks again.

Speaker Change: Yes.

Speaker Change: The primary driver of what we see in China contract or of course for Asia contract or another significant market is Australia.

Speaker Change: And they were off to a slow start in the first quarter, we've seen a little bit of a pickup here as we've gotten through the first half of the year and we're hopeful that that team can deliver.

Speaker Change: To deliver for us in the back half of the year.

Speaker Change: Okay understood. Thanks again, yes.

Speaker Change: Yep.

Speaker Change: Thank you one moment for our next question.

Operator: Yep. Thank you. One moment for our next question. Our next question will come from Jeff Hammond from KeyBank Capital Markets. Your line is open. Hey, good morning, everyone. Hey, Jeff.

Speaker Change: Our next question comes from line of Jeff Hammond from Keybanc capital markets. Your line is open.

Jeffrey David Hammond: Hey, good morning, everyone.

Speaker Change: Jeff.

Jeffrey David Hammond: Hey, so just on contractor, you seem a little more confident that there's growth there for the year. It seems like, you know, resi and commercial are still, you know, choppy, maybe commercials getting a little worse. But just talk about, you know, tone from the customers and activity levels. I know, you know, there were some, their activity levels were healthy, if you're seeing any cracks there, or is this just all, you know, new product momentum that's driving that company?

Jeffrey David Hammond: Hey, so just on contract or you seem a little more confident that there's growth there for the year.

Speaker Change: It seems like resident commercial are still.

Speaker Change: Dropping maybe commercial is getting a little worse, but just talk about tone from the customers and activity levels I know there were some.

Speaker Change: Their activity levels were healthy if youre seeing any cracks there or is this just all.

Speaker Change: New product momentum.

Driving that confidence, yes, I think it's new product momentum that really gives us the confidence you guys. All know what's going on in the market, maybe even more than we do but housing starts are they're not as good as you'd like them to be at like $137 million, which is down from last year.

Jeffrey David Hammond: Yeah, I think it's new product momentum that really gives us the confidence that you guys all know what's going on in the market, maybe even more than we do. But housing starts are, you know, they're not as good as you'd like them to be at like 1.37 million, which is down from last year. Single family starts are projected to go up, though, and that's good for painters because remodeling spend is down a little bit.

Speaker Change: Single family starts are projected to go up though and thats. Good for painters remodeling spend is down a little bit interest rates are still high. So affordability is an issue for a lot of people that are looking to either move out of their existing home or they got a low interest rate or new buyers, who are trying to get into the market commercial construction appears to be hanging.

Jeffrey David Hammond: Interest rates are still high, so affordability is an issue for a lot of people that are looking to either move out of their existing home or get a low interest rate or new buyers who are trying to get into the market.

Speaker Change: And they're pretty well.

Speaker Change: And then outside of the Americas. If you look at Europe construction trends are down as well as in AP with places like China that are also down so all in all it's kind of a mixed bag as you could probably paint the picture. If we didn't have new products that we would be flat.

Speaker Change: Flat to decline like we are sort of projecting for the overall graco business, but with the pipeline of products that these <unk>.

Mark W. Sheahan: Commercial construction appears to be hanging in there pretty well. And then, outside of, you know, the Americas, if you look at Europe, construction trends are down, as well as in Asia with places like China that are also down. So all in all, it's kind of a mixed bag. You could probably paint a picture if we didn't have new products that we would be in, you know, flat to decline, like we are sort of projecting for the overall Graco business.

Speaker Change: Talented people and contractor have come out with and launched this year. It gives us confidence and then seeing the results gives us confidence that we think that we can get we can pull some growth in CBD. This year, yes, I would just add to that.

Mark W. Sheahan: But with the pipeline of products that these talented people and contractors have come out with and launched this year, it gives us confidence. And then seeing the results gives us confidence that we think that we can achieve some growth in CED this year. Yeah, I would just add to that very complete list that in the protective coding space, where we serve markets like oil and gas in locations like the Middle East, with energy prices at the levels that they're at now, we are seeing those markets remain active for us and quite solid. And I think that's maybe additional ballast that increases my confidence.

Speaker Change: Very complete list that the in the protective coating space, where we serve markets like oil and gas and locations like the middle of the middle East with energy prices at the levels that they're at now we are seeing.

Speaker Change: Those those markets remain active for us and quite solid and I think thats, maybe additional ballast that.

Speaker Change: Increases my confidence.

Speaker Change: Okay, and then just semiconductor maybe just level set us on when you start to have easy comps and if youre starting to see any.

David M. Lowe: Okay, and then just semiconductors, maybe just level set us on when you start to hit easy comps and if you're starting to see any, you know, any pickup in the pipeline or discussions of kind of that cycle turning back up. Yeah, I would start off by saying that the decline this year was not expected by us. We obviously see the forecast, and that's a highly cyclical end market, and it didn't matter what you picked up; everyone was calling for a pretty substantial decline in semiconductors.

Speaker Change: Any pick up in the in the pipeline or discussions of kind of that cycle turning back up.

Speaker Change: Yes, I'd start up by saying that the decline this year was not expected by us.

Speaker Change: Obviously, you see the forecast and Thats highly cyclical end market.

Speaker Change: It didn't matter what you picked up by everyone, who was calling for a pretty substantial decline in semiconductor and obviously as we work down our backlog from all the orders we got in 'twenty, two and 'twenty three we started to see that in our incoming order rates as well just from a pure comparison standpoint, I will say that last year.

David M. Lowe: And obviously, as we worked down our backlogs from all the orders we got in 22 and 23, we started to see that in our incoming order rates as well. Just from a pure comparison standpoint, I will say that last year's orders were not great. The performance was good because we were working on the backlog, but the order rates last year compared to this year so far were actually up a little bit. So I think we're starting to see some green shoots in semiconductors.

Speaker Change: <unk> orders were not great.

Speaker Change: Performance was good because we are working on backlog, but the order rates last year compared to this year. So far were actually up a little bit. So I think we're starting to see some green shoots in semiconductor everyones calling for.

David M. Lowe: Everyone's calling for growth in 2025 with all the new fab construction and expansion that's happening there, so I'm hopeful that we've seen the bottom and that we'll start to be able to grow from here. Great. Thanks, Mark.

Speaker Change: <unk> growth in 2025 with all the new fab construction and expansion that's happening there so.

Speaker Change: Paul that we've seen the bottom and that we will start to be able to grow from here.

Paul: Alright, Thanks Mark.

Speaker Change: Yes.

Speaker Change: Okay.

Mark W. Sheahan: Yep. Thank you. One moment for our next question. Our next question comes from the line of Joe Ritchie from Goldman Sachs. Your line is open.

Speaker Change: One moment for our next question.

Speaker Change: Our next question will come from the line of Joe Ritchie from Goldman Sachs. Your line is open.

Speaker Change: Yes.

Joseph Alfred Ritchie: Hi, good morning, guys.

Joseph Alfred Ritchie: Hi, good morning, guys. Good morning. So, I know we talked a little bit about margins, you know, going forward. I guess just the expectation, with the new product introductions continuing in contractor in the second half of the year and growth not expected for the year, is your expectation for contractor margins, and you should be able to hold like this 31% plus type number going forward, at least into the second half? Just any thoughts around that would be helpful.

Speaker Change: Alright.

Speaker Change: So.

Speaker Change: I know, we talked a little bit about margins.

Speaker Change: Going forward I guess, just the expectation with the new product introductions continuing in contractor in the second half of the year in growth now expected for the year.

Speaker Change: Is your expectation for contractor margins and you should be able to hold like this 31% plus type.

Speaker Change: Number going forward at least into the second half just any thoughts around that would be helpful.

Mark W. Sheahan: Yeah, there's, I think Chris said it well, all kinds of stuff kind of depends on volume and mix and what you sell and what you don't sell. But as we sit here today, if the volumes are consistent with what we're experiencing, and the mix stays reasonably the same, we should be in decent shape and contracted to be at that level, in that range, I should say. And usually, when we launch a new product, just so you know, a lot of times the margin rates are higher.

Speaker Change: Yes, there is.

Speaker Change: I think Chris said, it well it all kind of all the stuff kind of depends on volume and mix and what you sell and what you don't sell but as we sit here today. If the volumes are consistent with what we're experiencing and the mix stays reasonably the same.

Speaker Change: We should be in decent shape and contractor too.

Speaker Change: Be at that level in that range I should say.

Speaker Change: And usually when we launch a new product just so you know a lot of times the margin rates are higher.

Speaker Change: Sometimes they're a refresh of an existing.

Mark W. Sheahan: Sometimes there is a refresh of an existing product where we've been able to take some costs out, or we're bringing in a new technology where we can, you know, the customer can realize enough value that our pricing is a little bit on a more solid footing than some of the other products. So, putting all that together, I feel pretty good about where that business sits halfway through the year, and hopefully, we can maintain it for the balance. I got it.

Speaker Change: Product, where we've been able to take some costs out.

Speaker Change: Or that we're bringing in new technology, where we can.

Speaker Change: So customer can realize enough value that our pricing is a little bit on more solid footing than some of the other products. So putting all that together I feel pretty good about where that business sits here halfway through the year and hopefully we can maintain it for the balance.

Speaker Change: Got it Okay. That's helpful. And then just a quick follow up question on industrial I know, we've talked a little bit about <unk> and you guys have you guys had mentioned battery to some degree.

Mark W. Sheahan: Okay, that's helpful. And then just a quick follow-up question on industrial. I know we talked a little bit about semis, and you guys have mentioned battery to some degree. Can you just level set us again, just in terms of how much your business sells into the auto and EV market? You can put battery in there as well, specifically for the industrial segment.

Speaker Change: Can you just level set us again in terms of how much of your business sells into the auto and EV market you can put battery in there as well.

Speaker Change: Typically for the industrial segment.

Mark W. Sheahan: We look at it on a total company basis, and for the total company, when you think about it for a full year for 2023, the automotive segment, which included EV, was about 9% of our total sales. Okay, great. And most of that, if not all of it, sits in the industrial segment, correct? Uh, correct. There is probably a little bit from the process side, but the bulk of that comes from the...

Speaker Change: For the we look at it on a total company basis and for the total company. When you think about it on a full year for 2023 automotive, which included the EV was about 9% of our total sales.

Speaker Change: Okay, great and most of that if not all of it sits in the industrial segment correct.

Speaker Change: Correct, there probably is a little bit from the process side, but the bulk of that comes from industrial.

Speaker Change: Okay perfect. Thank you.

Speaker Change: Thank you one moment for our next question.

Operator: Thank you. Thank you. One moment for our next question. Our next question comes from the line of Ross Sparenblek from William Blair. Your line is open. Hey guys, maybe just starting a contractor. I don't get the sense that all these products or new products hit on April 1. So can you just kind of give us a sense of the timing there as we move into the quarter? I know you also had another announcement yesterday.

Ross <unk>: Our next question will come from the line of Ross <unk> from William Blair. Your line is open.

Ross <unk>: Hey, guys.

Ross <unk>: Maybe just starting to contract there.

Ross <unk>: The sense of all these new products hit on April one. So can you just kind of give us a sense of the timing. There has it moved the quarter. I know you also had another announced it yesterday so it feels like it's an ongoing process.

Operator: So it feels like it's an ongoing process. Just trying to get a sense of how we should inform the market outgrowth expectation in the second half. Yeah, I think for the most part, the ones that I mentioned got launched really early in Q2. So the XT, the Cordless Connect, obviously QuickShot was launched last year.

Ross <unk>: I'm trying to get a sense of how we should.

Speaker Change: Form the market outgrowth expectation in the second half.

Speaker Change: Yes, I think for the most part the ones that I mentioned got launched really early in Q2. So the XD cordless connect obviously quick shot was launched last year.

Ross Riley Sparenblek: And as we, you know, those are probably the big ones in Q2. And as we get through three and four, they have another slate of products coming out. One of those is our new Fusion air gun for the spray foam industry that was just recently launched. And we've got some new plural component machines that are coming out for the high performance coatings and foam market as well, that are just being launched. Okay.

Speaker Change: As we those are probably the big ones in Q2, and as we get through three and four they've got another slate of products coming out.

Speaker Change: One of those is our new fusion are gone for the spray foam industry that was just recently launched and we've got some new plural component machines that are coming out for the high performance coatings end market as well that are just being launched now.

Speaker Change: Okay, and then maybe just on the quantum pumps I know you guys are in customer trials, but any updates there and maybe expectations on a broader commercialization.

Mark W. Sheahan: And then maybe just on the quantum pumps, I know you guys are in customer trials, but any updates there and maybe expectations for a broader commercialization? Yeah, I think long term there's definitely still a trend toward electrification, and our team is really working to identify where the big opportunities are. And then we're putting, you know, dedication into those customers and those applications where we think it's going to resonate the most.

Speaker Change: Yes, I think long term there is definitely still a trend toward electrification and our team is really working to identify where the big opportunities are and then we're putting.

Speaker Change: Dedication onto those customers and those applications, where we think it is going to resonate the most what I would tell you is that the.

Mark W. Sheahan: What I'll tell you is that the opportunities for it are there. It is particularly attractive to industries where they run their pumps more on a continuous basis, and they're consuming a lot of air, as opposed to some of the industries where they're not doing that. The ROI really comes from energy savings.

Speaker Change: Opportunities for it are there.

Speaker Change: It is particularly attractive to industries, where they are running their pumps more on a continuous basis and they're consuming a lot of air as opposed to some of the industries, where theyre not doing that.

Roy: Roy really comes from energy savings and to the extent that somebody is producing something in a factory where their pumps are running continuously quantum is still a great opportunity for them as far as an example goes in the high volume players that Mark's talking about.

Speaker Change: I think the chemical industry generally and paint manufacturers specifically.

Speaker Change: Okay. I mean, just given the ROI is there a case, where you could see customer.

Speaker Change: Customer investment for the energy savings despite the overall.

Speaker Change: On certain macro.

Speaker Change: Yes, I mean, thats, the capex or incremental.

Speaker Change: I mean, it kind of depends on the company I can tell you if it were here, Greg or like ROI. We can do it whether times are good times or bad but of course, some companies. They tighten the purse strings, they put projects off and they wait until they see things are picking up a little bit before they make any investments, but the ROI is nice it's compelling and it fits in with what a lot of companies.

Speaker Change: We're trying to do which is really reduced their footprint.

Speaker Change: <unk> usage of.

Speaker Change: Energy and this is one way that they can do that.

Alright, Thank you gentlemen.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from the line of Matt Summerville from D. A Davidson your line is open.

Matt J. Summerville: Thanks, just a couple of quick follow ups on contract or Mark last quarter I remember you made some pretty bullish comments around.

Mark: The fact that this is probably the most or one of the most significant contractor launch cycles that you've observed with all the time you've done a great co given.

Speaker Change: That comment and kind of what youre seeing from a sell in sell through standpoint does this cycle you're seeing this year, then create an uncharacteristically difficult comp for next year, I guess I'm trying to understand how to kind of think about that aspect going forward yes.

Speaker Change: Yes, so first I have standby the comment I think these products are fantastic and I'm really glad we have them because if we didnt I think you'd see much different results in <unk> wouldn't want to speculate what the number is but it wouldn't be the kind of growth. We saw here in Q2, I think going forward next year. Our hope is the market itself improves and we're even better.

Speaker Change: With respect to the housing market in general.

Speaker Change: The interest rates hopefully they come down a little bit there's more new construction happening those types of macro tailwind that we might get.

Speaker Change: Would be something that we would hope to see in 2025 Super confident the products are going to be great people are going to want them they are buying.

Speaker Change: In a bad market, that's even better.

Speaker Change: Lot about what people expect and what they are getting from graco and.

Speaker Change: We had it in a good market, which hopefully next year it should be it should be fantastic.

Speaker Change: Got it and then just another follow up to contract or can you, maybe just delineate a little bit what youre seeing outside of new product demand specifically within the home Center channel in contrast, with the propane channel and how that should inform mix going forward.

Speaker Change: Yes, I think in the home Center channel, we haven't seen.

Speaker Change: Like robust in terms of the overall growth, but it is it is growing so we're happy we're happy with that.

Speaker Change: I don't really have.

Speaker Change: Good today data for you on foot traffic, but it's probably not as good as it was a couple of years ago, but our our.

Speaker Change: Our products are resonating pretty well in the home center or the pro side has been has been good.

Speaker Change: The pro channel in North America in particular, you saw a nice pickup in Q2, and we think contractors are busy they've got work they got projects, they're willing to invest in new equipment that makes them more efficient, which really lines up with what we're trying to do.

Speaker Change: Yes, I would just add that on.

Speaker Change: On the home center side.

Speaker Change: Yes, the business.

Speaker Change: <unk> did grow in the quarter you do see mixed results from different home Center partners. There is some variation around the mean at.

Speaker Change: At least a couple of those partners report.

Speaker Change: Respectable.

Speaker Change: Not respectable foot traffic if not at the levels of the prior years.

Sure I think in terms of as you think about the future and doing your projections mix is a factor.

Speaker Change: But I would add that the contractor teams spent a lot of time over the last year striving to improve the what I'll call the profile of the business profit profile.

Speaker Change: For home centers, and we're starting to see.

Some respectable momentum in that area too. So obviously all you have to do is look at the units to know that pro paint and high performance coating and foam products are going to have more margin than home center.

Speaker Change: Because of the value the value added but.

Speaker Change: Home Center is a good business for us too.

Speaker Change: Thank you guys appreciate it.

Speaker Change: Thanks, Matt.

Speaker Change: Thank you.

Speaker Change: Sure.

Speaker Change: Mind, you that star one for questions starting 101, one moment for our next question.

Speaker Change: Okay.

Speaker Change #101: Our next question will come from the line of Andrew Buscaglia Gila from BNP Paribas. Your line is open.

Speaker Change: Okay.

Speaker Change #102: Hey, good morning, guys alright.

Speaker Change: So.

Speaker Change #104: The slowdown in industrial and process.

Speaker Change: <unk> seen that.

Speaker Change: A little while.

Speaker Change #100: And it seems like things are just getting a little bit more weaker where you're taking down the guidance, but how do you. How do you at what point do you start thinking about costs.

Speaker Change #100: In industrial and process and what you can do to protect margin.

Speaker Change #103: Is it too early or just trying to get a sense of how how does it how the year shakes out for margins in each.

Speaker Change #106: Well these are pretty profitable businesses to begin with there's not a lot of low hanging fruit to go clean up and we tried to take a longer term view.

Speaker Change #105: The markets in Europe.

Speaker Change #105: We realize there is going to be in good times and bad but through a cycle is really what we're trying to manage too so.

Speaker Change #105: Right now I'm very happy with the overall performance of the company as I said in.

Speaker Change #105: Of course, if things fell off a cliff and you had to do some different things, we'd evaluate that but I really don't see that happening.

Speaker Change #107: Yes, okay.

Speaker Change #108: I don't know.

Speaker Change #109: Kind of commentary you had on.

Speaker Change #110: Your commentary around the distribution channel on what.

Speaker Change #110: Your distributors are saying.

Speaker Change #111: Yes can you provide a little bit of color around.

Speaker Change #112: What's the latest on that Avenue.

Speaker Change #113: Yes, I think like I said earlier it just feel like it's a sluggish macro environment. It is in any real meaningful changes in terms of the dynamics that customers are looking at when they are making purchase decisions are still looking for process improvements in their factories returns on investments which include lower.

Speaker Change #113: Usage of the materials that they are applying anything that we can do to drive those savings for them.

Speaker Change #113: Factors that they look at but the macro is just different than what it was there's been a ton of investment that's happened over the last couple of years like I said, I think they're playing catch up a little bit.

It was a period of time, where it's software across multiple end markets.

Speaker Change #113: Company has done a great spot.

Speaker Change #113: Whether the storm are still investing in new products, we are still looking to expand our channel. We're looking at some new market opportunities and all in all it is.

Speaker Change #114: It's not a.

Speaker Change #114: Robust economic environment like I've been in the past, but it's not all doom and gloom either right.

Speaker Change #115: Yes, so there are not sounding any alarm or anything like that either it sounds like.

Speaker Change #114: No.

Speaker Change #114: Yeah.

Speaker Change #116: Alright, thank you.

Speaker Change #116: Thank you.

Speaker Change #116: I'm showing no further questions in the queue I will now turn the conference over to Mark Sheahan.

Mark W. Sheahan: Okay, well that concludes today's phone call I appreciate all the participation and look forward to speaking with you again.

Speaker Change #118: Have a good day.

Speaker Change #118: This concludes our conference for today. Thank you all for participating and have a nice day all parties may now disconnect.