Graco (GGG) 25 Apr 242024 Q1 Earnings call transcript

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. 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. statements the purposes Act. Private forward-looking harbor the constitute of provisions Securities remarks for of the safe These Litigation Reform

website results on in including report These from www.graco.com of materially SEC's XXXX recent Annual at XA may quarterly as Form company's the of Actual result XX-K reports website the on a most and of those the XX-Q. various XA the identified are on www.sec.gov. those indicated factors, company's Form Report available in Item Item and risk at differ company's

management's the as new update of reflect The over Executive Knutson, conference these they Corporate statements company current the made. turn light in information Forward-looking to views Chris or and only are President, to statements Vice of future speak undertakes events. I Controller. obligation no now time will

everyone, here I'm over for I of of Good share. the of before our you $XXX $X.XX Reported $XXX diluted additional David today provide or earnings turning with thank quarter our a first morning, joining Lowe. decreased million, quarter last Sheahan net brief Mark overview and results of million sales will for first from call. and quarterly to Mark the decrease X% X% per a to Graco reported commentary. Yesterday, call year.

excess no diluted net had a translation share, decrease Excluding on option exercises, The from $X.XX per of for $XXX impact of benefits currency earnings the adjusted impact quarter. were sales stock of tax or non-GAAP net the million earnings significant effect or XX%.

and costs to quarter. lower rate Contractor the points the price Strong realization offset channel were XX Industrial from than product basis and more margin gross mix segments. enough increased unfavorable product The and in

income decline development. in increased declines in during stock-based offset margin the resulting mainly volume million operating to sales quarter, effective on as and debt rate Gross XX.X%, tax quarter, expenses $X to tax million an adjusted product as-adjusted rate XXX expected and investment the additional our year the other $X approximately expense and basis Total decreased expenses of increased points. Interest was higher quarter, with held in on was during XXXX. long-term improvement XX.X% enough of cash by consistent margin interest X% to repaid The full new expenses not in rate was operating compensation rate basis. lower higher is which and interest due driven XX.X% primarily or operating our

point provided Cash offsetting earnings by of working favorable $XX dividends Cash as of mostly year-to-date provided totaled million, last earnings. a projects. net by million and in These percent adjusted uses operations year, share of offset $XX was $XX the capital XXXX, million were of assuming lower $XX million few of mix mix expenditures of would facility impact unfavorable year. of the net we Based same full by rates, to a year. impact uses comments in on and current and currencies business products volumes, as rest percentage no net million. A have currency as include operations of changes net by expansion the sales, in the $XX increase than issuances X XXX%. more look exchange items, by million, cash driven of for on earnings including Significant movement $XXX on foreign an from forward capital of cash

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

everyone. morning, Good Chris. you, Thank

progressed, America improved which rates quarter weakness positive the systems all robust consolidated And pressure revenue quarter, or operating adhesive put challenges, the was margins while sealant our some improved. segment EMEA April. the The finishing, $XXX grew North process declines driven of at backlog and as first improved year. at for end the All which Pro have quarter our sales morning coatings, Despite than than Contractor segments, of million, an finishing liquid is margin on will on and incoming be into by and year, order quarter. we incoming of the started in both were softer my systems regionally, powder this channel. Volume with the declines with rate, the resulted maintaining $XX the currency greater organic with extended $X constant trends below in during the saw XX%. At and basis. the at beginning began transfer gross higher the the year order paint end the margins quarter, in million happy year comments from these sales. Contractor but our semiconductor, slow, We across improving equipment, an with each expected equipment in lubrication increase resilience million our last of of the but foam but relationships, we reflecting along protective spray was quarter, than also price/cost

releases, X% has shipping last the year. North will in the from and was sales order X% during protective Now was quarter held segment with Feedback been the first coatings turning declined bright can quarter. Contractor Industrial some improved margins XX% impacted volumes. The lower markets. rebound excited against channel progressed, positive, The growth. fully a of the about the released. Incoming we're to soft us products timing by this start heavily Backlog down quarter. segments. rates was primarily was the we end million to year's quarter spot that despite comp optimism from to product see up Pro they're as paint, second strong up strong orders the some foam a last at start as our the and Operating and these which America new be spray steadily segment commentary gives year. which $XX of compared of EMEA

and adhesive businesses. sealant coatings Powder markets Asia construction were had sales to to offset were systems continue not enough a start liquid strong, declines. and have the We in Pacific slow systems and the these but globally weakness finishing in

activity we generally by markets. volume, seen sales in markets overall have good battery, mix were spending. The key the decrease impacted positive, margins packaging remain and energy, coating in Operating revenue alternative development higher and our and end product e-mobility

were broad-based compared Moving segment. Sales same to years to down quarter all the of This across off Process X XX% coming with of the last categories. is product strong year. results segment growth

XX% XX% despite grew During this in quarter quarter XXXX this from softer period, of sales the to volume. operating first the earnings

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

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

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

do continued headwinds the of we products the improved, have rates remainder order in year. for expect semiconductor While

last Moving same to January bookings our outlook. and period year. lower than February the were

the are in in bookings revenue supports March April However, despite nicely, first weeks the year-to-date of and flat the X% This orders. X up for decline quarter. resulting our outlook

products, new Contractor, to XXXX. incremental in should especially our are provide and exciting sales addition, In when compared

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

remarks. our organic constant I'll of reaffirming year an low basis. That prepared growth for on questions. We the currency turn concludes guidance are it over single-digit revenue full

Instructions] [Operator

Capital with from comes Deane Markets. RBC Dray Our question first

the prepared remarks. appreciate I

on by the improved progression, throughout You touched the which quarterly quarter month. and

confidence color And being in guidance. some us you give your of that reaffirm to kind there. tied the able to maybe So

was of the through margin -- second us falloff, that David new gross take quarter? And some that that got just is encouraging. much How contribute then Having comments products maybe So progression. on really in despite actually the context can just the has this. up,

So some context give us there.

the on down. the so we're a well. January bookings Yes, up bit as at I'll Obviously, little we slow saw in few first start least weeks in very the start April, margin, were bookings of chime to were February or a David had March, here, nicely. And pickup, of and in positive March. a we territory down. we're let Chris year. for

So I about early we've out this pretty the when be with a got in year. down of lot exciting Home last I've excited would revenue, the But terms coming some X% long orders there different encouraged customers our as in-house as flat even been gotten through a time are couple Maybe went years. excitement. we don't around areas. XXXXs, really time, into CED. I Center in we're we really of in opening feedback here we're were when releases actually that by end that for XX we last was the the in another year. The a remember the of the time in week our when a of products are said comments, though of from

gun we was was that's actually we equipment of a launched product remember, industry. that year of QuickShot. did gun a last mechanical common millions versus with I might activated electronically year, think the And a in and tens activated revenue QuickShot, solanoid that airless You product. last pretty it dollars of called

And taking also technology, well. we're entire it of and to with that we're and run it's equipment through compatible as going line, competitors' airless our our airless now all

the able -- contractor of for to have. they're be have a their airless have to if they to So wants QuickShot, of performance equipment that with going kind whatever

be new and couple painting, with electric floor. launched where going that buckets designed motors These really and ratio. doing also they Graco in have of people motors. from units specifically would designed now world line in and quieter be else are we of products that in the coming got has that are flooring to mixing feedback the performance previously. They're than on new our putting feedback channel stuff whole has products manufacturing Graco. We've had that been nobody And fly And it's motors our airless the positive. been has for in the a in hope that cool with -- we the on past really higher CED course, the Of area, partners the in variable and are are in really We've those. then good. A manufactured on

traction feel the we I the that new really on So good to product side. about hope very see

of homebuilding be is to bit markets, the great these the is a contractor come. a years economy products many always for many, and of in some little even going bit course, economy Of the But if to wildcard. are a sluggish

let you I'll David, margins. gross talk the about

time we're long up both All has in the by price and in for the I of by going make -- we And gross struck the the premise the probably because margins realization than business opportunity I into to more cost back we -- quarter job gross right. business same price. And environment results, Thank the significant segments I played -- question, on by before held across the on favorable a units. of expected a operating and well. across the a good importantly, have some margin good the segment had a the -- claim the pretty I softer like pretty you. have comment year, was go segments. Units dynamics a have to done that. a price could a role done were And appreciate

did units cases remain those And continued they side, across certainly pretty hold our up. off at respectable on profitability hopeful they while to peak. carefully. have And track did The I pricing So still going that input we're realization. moment, And we remain costs elevated, hold segments several the see, well. come the up in

But end That's semiconductor, the of I keep biggest I a positive So highlighting? like, my of had -- factors? think would swing negatives. and question, the specific. the one just were really negative, it was follow-up I be markets, And the sounded helpful. very so you first realize multipart asked just what Which I'll the

year, pullback for kind in anticipated of I quarter, semiconductor, tracks Well, the really we the which industry. for and the think a

backlog. a bunch off we've orders of a over had remember, And we a the last lot might of or lot of of that. worked You couple years,

but I still some it it's have before. think where was we backlog, not

But pundits going see. that up guess does in would process the say unexpected. that are one our pick half industrial quarter see The transfer little the below what I equipment the kind to of I camps. really green to bit latter we markets, expected a that the be. of weakness least April, wasn't year, shoots we were And of predicting pumps and the all it's in like we'll some it to to as starting both we're look of the those wrapped start of them there into in year, up had at

I would as momentum. like touched other I of -- people some add being a have respectable that industry Maybe couple segments having you references. on know just

protective the projects team and on oil in salespeople defense some out pike our coming side. America, the activity coating market. Here called And price North good course, the in the in underlying that helps solar cited the of And of has Europe, activity, also in of our space. have demand stability project Middle down especially probably and East in

Mike Halloran comes question next with Baird. from Our

side end up you've market Is just through conversations, understand on mentioned, then, optimism up customer of certainly commentary, and order this Mark, the March, that I April. order So reflected cetera? picking kind in through following et channel strength that the the feedback, --

at getting that that's would given anything people there there's different get pieces I'm and the and month-to-month. Curious, relatively support where is choppy what's backdrop demand if holistically lot are of what just are Or the you telling in where going synergy you, coming you that more suppose real levels of inventory everything? of episodic markets. chance between is, here order with got part on and I chance are that. channel in what a trends rates you've a kind a lot around a think there's There's moving therefore, if of a

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

in construction is weak, The as still particular. pretty flowing there's as capital into markets much have China, just been there. tough. not Asia

to China big but a of the that's containers China business. the starting be our catches pickup are to going everyone starting thing gets like there enough cold, build a change And container not there. course, really see We little game of bit the where in to again, the to is industry for they're sick.

more point, see at I'm probably greatest So optimistic than not this because all pessimistic businesses. at the short-cycle these in all, we're but we'll forecasting

makes just do the One, No, of hitting these X product them of are the that launches, more second year in here. through quarter? sense. timing or And a the start of these then lot gradual some

Most of will them launch QX. here in

QX, of target are end the point. by sure, is this our what For at plans

That makes sense.

accounting lower for process? that year than the is growth, And the does half, mean essentially rest so that XQ front is probably a the thought slower little growth even of the

Well, up on -- we ramp product side. think, new the QX, will is I the see

indicate We and in have business did here, ago. for couple it better But at seen, sure X should does that than first decent knows? least for QX, weeks we some the even growth order of rates a months perhaps who that would it see

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

next question Saree Our Jefferies. with from Boroditsky comes

just believe quarter. one your with digits customers was up sticking in spare So mid-single I equipment the major noted Contractor, of actually that

decline understand the saw? could So us help difference the there you just versus you

Yes.

don't do the respect would we year, -- end believe inventory -- they always our be if really some last with to think the answer. there quick of did that But equipment. I build was I it's know at what that

orders. that sales a started dynamic work we quarter, out-the-door we there's kind our to in And of what as the favor. think of the think difference for again, I end shift between and through I their saw

I And inventory normal this I guess up guess, there, following that, on so are levels just at point?

Yes.

is And your margins the business volume would expected. but more declined decrementals be I know in than can then when Industrial we high lower, probably have

the this remainder So think drove trend just about year? this? for what any thoughts And we how do of the on

it of was Part Yes. mix.

powder X Industrial different those product addition X our of businesses down. areas. actually we the a on obviously, I business going in had think those in And rates groups, equipment to difference up that And and then, we there that, was categories. our legacy in margin different noted is were mixes

our they're here ramp-up of product spending businesses, bit little quarter within a be a also in going And products legacy because launching in first was development there the to QX. in here

from of so last quarter, a spike And year's was side. there first on the bit spending little a

of the on add new just all appreciate one some products. I'll And color more. I the

You products mentioned put new Contractor, quarter. perspective? to lead performance product, second you what at from does historical in in these that just you to outperformance help size new like maybe could sales But especially when opportunity, starting adding that looking the a in an

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

comments have we be just internal and actually getting that will until we they course, been should needle -- to in what earlier, revenues move to hit honest have back projects you, But long out and from I say really use for exciting that think time, is the who's we that I else the if a with be. stays we pretty justify would the slate might Of we know. But estimates to just new coming this consistent. my don't everything particular products here market, CED, somebody of

comes Sachs. Ritchie question from Goldman with next Our Joe

expect the good? and box effect be some to maybe there you're end market as contemplating the just curious that is well? stocking for discussion. big following is of of this just thinking -- Or a when this on product about you're hitting you I'm channel, that So just shelves new product would demand just the

want good it launch in it's product, if a a to to stock. they're going mean have I we product, sure, for once

that that businesses, with these a the products. these going CED they're so to stock-in not that pretty I So also are But be and just there's naturally, happens people respect going some believe particularly smart to overstock. to run

to they think going demand stock what to is be. They're the going

might bump, see be if did later products big should because bit helps. the strong but So say, these ramp they a a of wouldn't big we the that year in let's where then little to sell-through a pullback, for up, see a I enough expect

little to extra the they that maybe concerned Yes, challenges some I would just and that add fairly we deliveries a that's I ordered be were because box XX we're shouldn't the last would not what months agree that, bit such, of -- There about over there the stores about years days with large times won't effect where and chain the -- now. experienced maybe be that and supply here. talking X

attachment Center going -- called We do have Cordless it because interesting Home one a to that where onto really it. talk going Home it. have can Connect, drill cordless is sprayer. we And put into the Center that an love it paint can about released and and we It's think product I you into a turn take the

was that recently. one so Cordless called And released It's Connect.

look like. can you'd our But nice a that product Home if be could website, at Center. on guys You it the for

I'll out, this are pretty the year? I thinking change the as imagine how Mark, that pricing is this I across definitely that new good How products are one guess, does But you guys about for so you're X. with that -- -- pricing introducing, these that this well. take does portfolio -- X would

on CED an margin say of we these as whole you redesigned what would product, cost existing upgrade large with I typically, or at more wouldn't businesses. Well, the across -- launch incremental products, pricing an just it, see product, there's when it and efficient we've the we've take say if consistent a some any would it's to out, a rates better I new are but that

Summerville from comes question D.A. next with Davidson. Our Matt

Just brand-new products you this more opportunity are those a contractor's to space? or back you lines, lines product the but you're consider shelf -- shelf maybe Mark. an new or are for where refresh this of of you both, second, a and tool And space tools of belt? gaining consider adding cannibalizing answer you existing to is Do more a the do along

say bag. Yes, it's a I mixed good it's a question. would

So technology, you contractor that like someone's you that airless sprayers you're designed for to product that that access a the just talked world, technology have can QuickShot currently something making new is that's tool our by that's be and having tool I add the doesn't just another Cordless specifically the has they is to also an an that built existing used in didn't able be before. which better today. The our that have website motor and Bringing on airless by taking electric about, into putting That's belt to Connect again find it XT, adding all upgrade. product airless it. Graco sprayers, would which that that and

the of more do and units, them comes when mixing, the to product equation, get more we're that does some group to launch CED more to they to a to apply. when the job tools coating On customers ability to got the in today, making and their it ratio everything that, protective some them that experience a but bring them them are having the of the done, variable hand materials contractors that units, a better productive to they HPCS making better side is efficient. Really get flooring bringing giving work them doing our capability, away tool from giving

touch funnel as or here with you're pipeline? M&A sort a and comes million Has seeing mean, maybe the to not when changed? obviously, on of momentum anything you're cash way a follow-up, it debt. in you from sitting in of whether practically Then your I actionability much can no $XXX standpoint

about we should be deployment capital thinking So kind of from here? how

the always we getting our that our are more things with targets of have I substantial communicating proof years working on hard. is pipeline. in of M&A prospects. The guy Graco David, terms least about and feel, been read is little have do very good months. in the market, XX have been Yes, good a some this, I I've in better pretty ago, But and what teams internally, The for names a the at been has from last the what done. least market it thoughtful And feel I to I've is the what couple more than might doing, now active but intentions of our pipeline view favorable our feel the over been bit deals I X we've Chris that have. brought of in what the really an about we at heard, list. a The

relationships cross-checking companies add I and term, anything can do. unreasonable for wrong the And discussions my that really want auctions, on reaching speculation that people opportunity that some teasers -- some sometimes to work, touching an opportunities. also to think Not Yes. you their Mark there's and but out this would in that things increased big been out some team to, they're Again, interesting market, to our and there. that's contacts and and an directly. internal initiating blue of group picture, to there more with that and one that's team be important long activity doing, there's of with their very we cycle could with expect now, not yes, our bring there's -- in, in we generate us. And talking where from increase to merchandise the of on exclusive I'll them smart marketing impression with alluded the activity, out I we outside. We are see it, books, where are we're but at guys portfolios, many equity about private lot -- they're it's a than at this do, speculation call

what series So the results, and in in the good we're in think I see a but direction. of is steps proof doing not is good I a the intentions, it

with Hammond from comes question next Our KeyBanc. Jeff

seems sense just to out seeing most of have terms that product on of lend -- timing. XQ systems or to would to XQ introductions the the kind in the orders XQ? from weaker you're XQ pushed of anything terms that itself But Just would better and new maybe gotten guess a and contractor I make in bigger

that terms at we the if up I at that think it out at as quarter, to the it my and company and you mostly came at just end least in pushing of in I'm slightly, aware end look really had orders mind. one of the were a the is no comes guess of the that Nothing orders the to up quarter. was of. due backlog or was the -- systems, where anything that There starting overall the I year we ended

Okay. guess and slow you're saying is within that? any just within start, And of and kind feels say, as given digits. of bias look mean, then feel right given -- I EMEA hey, do single Just that kind I the within you low about change slow there America you North But regions, at start? the Or the Asia weaker? any

what Well, kind go of I just said to I would before. back

XX-week good, short-cycle sure, forecast For region the changed our not to The quite any really XX car. look and tires we very a at one, look they we're lot ability we're a could look way next good. is in laps one and the handicapped the into period I so a XX-lap haven't may on a race, business. And by the fact then that it, yet

that our do are think here. best left of I make All business to and we'll units, hard pushing So growth, year all regions that plenty happen. there's toward

the European would I the add, opportunities we just where get Yes, colors in Contractor you see with bright okay about I space, some colors in with market all flavor reasons across we how some I'm the the continue things well think EMEA of that week lap, on. respectable for we in in as the industrial things, that than equalized the Mark little the there, market, XXth some Contractor. And a sense have at if China, we've the and the We you Definitely the us moment, size think caution at look board. a in other of of in get do touched gives a industrial for can Asia at for that of markets the it, Pacific. are seen outlook in possibilities -- spots kind chart on other you a world. hopeful But least I momentum concerns at there greenish feeling Americas parts and as of and and to segment too. have take the can more will construction the the the and in process that see the some there

[Operator Instructions]

Our Research. Liptak with next Walt comes from Seaport question

the cadence. for a the Thanks on on follow-up that. color And just monthly

like into the I would okay, little what and did a at think kind a you things was be weaker and little it was China there could And looked But and tougher. weaker was the going something if bit we the postmortem industrial said, is that, be that bit that weaker of why? or knew in U.S.? comp quarter you

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

it just of of experienced. firm seemed Asia than footing for And of just more would was, that to get the is if through would expectation slowdown we wasn't the the because categories like product those have what things we work us. start little off we note, of send in Pacific of higher The that year. cause that it things have a quarter, is, actually seem region. we was a I to And me our thought That have compared here. course, general And an limited idea good better on regions look as what news, say, what a the to the you kind bit to been to would all

Europe Europe, looked numbers in everything pretty And great. in good, Europe. That's the Yes. considering Okay.

out I so to strong? powder was think I are And I earlier there business? amount related wonder, that think pretty the comments as seeing different you that well. some a Or in made is trend you Europe?

more the think the channel from paint volunteer of I'll had And seen business, we, positive the we coatings lift sell-through pieces think, the business. foam. Contractor the were the pretty we some as Well, to in side out story. protective Europe was those the Pro good. And the I I that mentioned of probably called

the X regions. a On side, just we period. And segment flattish Europe, got the we'd hoping in Process anemic. beginning off equipment course, the on of were the percent Industrial in at It Channel -- And -- characterize the other market channel the is the I'll the was slow a think the the that weren't space, market call from of as receive there the powder year. then orders a I for larger start. I the think of than market more the other there to in it bit we segments, to powder Industrial being in

then Okay. for on maybe the Great. color me. last a And Thanks that. one for

you spend With second drops the discussion once half the think the of products in which off there in the is great, I product new new that get new quarter a these is products, second or launched?

meaningful Not in a manner.

there I If Mark questions, to no over are Sheahan. now conference further will the turn

good of right. rest much thank and today. your have for day. the a very you All Well, participating call, concludes That

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