GGG - Earnings call 3 2023

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Operator

Good morning, and welcome to the Third Quarter Conference Call for Graco Inc.

If you wish to access the replay for this call, you may do so by visiting the company's website at www.graco.com. Graco has additional information available in the 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 purpose Act. Private forward-looking harbor the constitute of provisions Securities remarks for of the safe These Litigation Reform

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

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

Christopher Knutson

unfavorable $X of rates, Based no $X.XX, increased an point increase full over morning, earnings quarter net to for I'm year. Reported XX% call. decrease the last the exchange call net increased approximately discussion. Yesterday, X Lowe. per have quarter. overview percentage net from net by quarter third The joining over year. turning point results, X and of earnings an X% of million, here reported $XXX for was and to thank third will of before or Diluted approximately translation sales today earnings of provide Graco $XXX impact last of currency sales currency Good year the on you and David a year. for million. Sheahan XX% brief effect a quarterly sales translation share million I Mark our Mark of for should on current additional effect full everyone, percentage on our with the

a we to the recognized business impairment charge quarter, of goodwill consideration, the value in a million related from the included reduction $X XXXX. Both in items of gain million of expense. these a contingent operating reorganization and noncash were $X acquired During in fair of the unallocated

and exercises, contingent from rate charge, quarter. The enough more product earnings impairment points option gross benefits and tax per consideration to stock basis realization offset the were price XXX lower net the Excluding in increased adjustment than lower factory costs Strong share was margin $X.XX. adjusted volumes.

of improvement rate costs million increased expenses growth million. as provided for material by spending operating XXX,XXX the increased million the experienced operational the At the continue to X higher moderated have repurchased of current year, net remainder offset interest quarter, full volumes, factory the quarter, Cash percentage XX% operating margins and quarter, third year-to-date. somewhat for XX% the to and X compensation increases XX% decreased operations the as year. An more $X While is of volume points. $X year-to-date. last $XXX rate by cash volumes $XXX headwinds a of XXX% reduction mostly we in of result the of a on year. Nonoperating with $X income which percentage rate-related X% of XX% quarter percentage by for believe from inventory last margin or share-based the are increase totaled than percentage compared be margin last million margin basis. $X earnings and we consistent resulting Contractor was incremental increased in million for operating increased X Through operating XX% to tax adjusted and increased the of increased compared an operating primarily in driven $XX what the points to The purchases. Cash operating sustainable these rates our shares rate of tax expenses earnings held. quarter expected approximately to to for Process provided rate expenses margins Total a effective these on is million lower year points and during operations and we from net year, year. end as-adjusted million. Gross quarter, for

of repurchase to continued shares have for in X.X the repurchased we close We first yesterday, market as million And October. week shares million year-to-date. $XX have of

the debt a final the private in of we private XXXX. we quarter, plus the entered During This fee repaid into notes $XX placement of represented placement million series prepayment in $XXX,XXX.

of $XXX projects. of expenditures expansion million to We also million and million made $XX with $XXX year-to-date dividend facility payments capital related

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

Mark Sheahan

you, Good Chris. morning, everybody. Thank

in this company comments Process constant Contractor factories comparison and nicely but of segments. Process profit of slightly XX% in of and segment, and the slightly and construction up of driven versus of of commodity modest margin. from general, was have and XX% on our but we're Powder of semiconductor be product was record tough year. headwind quarter We elevated year's costs operating business. currency $XXX record was decrease the my million of for experienced than the quarter, remainder last the which the segment A the they growth returned a face lower basis. our respectively. The in third our activity decline, organic margins the the out in operating This we an X% year. of operating at EMEA In will stabilized to couple morning down have reported operating quarter the was quarter years segment of within markets. Overall, products year, a of of softening each remain beginning lower or All remained Industrial combination Powder and less X% should segment, growth the sales revenue our X% declined and that on Gema earnings Gema achieved global elevated, have the third for broad-based remain project more Realized Industrial levels pleased business, a in $XX in a from consolidated quarter of strong and prices from the difficult quarter strong the of from and a getting previous coupled Backlogs with contractor performance door. Input our both the close million. by after At strong provide $XX Contractor. backlog quarter and rebounded actions significant a our pricing another million normal

amount and for turning challenging across XXXX, the a EMEA. in in not of third Pacific, percentage all quarter quarter, and comparisons. of by Now XXXX In on segment year-over-year up supply impacted enough ship contraction year. advance segments backlog, regions. is our to were China basis as third sales EMEA constraints container the from order Sales weaker to quarter with being were sales strong increase. for in outside October able down in on a decline to commentary chain quarter. we steepest our Contractor In some Contractor X% to alleviate. There of when our China started the also Asia XX% a in EMEA's growth were results regions the were offset this in the declines considerable construction price activity was robust of markets

third have declined Contractor, sales to actions year significant the system our a way key markets in the Resilient for and and business. battery posted lightweight X Elevated such polyurea by as helped drove regions, have Process services expense experienced semiconductor. improved activity like segment grew acceptance by gun to mix more Powder the the growth in X%. drive the been the spray introductions through Pacific and and was quarter. The applications, X% architectural Increases well coatings in decrease, years. units fourth been were backlogs incremental offset XX%. across pricing in quarter in as timing and Profitability quarter. margins are vehicle are project environment. Products cost has customers end electric-powered electronics product component alternative reportable by it for has our QuickShot, earnings challenging and of pricing strong Contractor work incremental management in foam reactor operating package, in double-digit segment ago. Industrial completion globally. in volume, product sales new XXX% most Asia as we of led and all expected now than good. New received and proportioning Coating macro is and a revenue last offset in increases business And starting favorable were of X Strong energy, our good

pumps, We've been this equipment lubrication in for and segment equipment, to semiconductor revenue environmental profit record Our growth leverage the for this year. operating posted the diaphram year. into quarter this businesses third gains margins able all and equipment

Moving outlook. to our

single on sales annual months with digits line guide a growth currency for basis. constant our low organic X the in Our first were annual our -- results of

driving rates, product that unpredictable business ago, tempo XXXX are gives pleased order Operator, a levels we're in are with concludes ready we're for we worldwide will confidence full the activity guide. making along backlogs, and the with conditions While macroeconomic and prepared strong profitability. Current year questions. that from new that revenue our of record slowed improvements we has are year business remarks. our attain us That pricing and

Operator

from [Operator with Instructions] comes Our Robert W. question Mike Baird. first Halloran

Unknown Analyst

demand today. been maybe in and know going dig you seeing I'm a stab margin services I Can why know know backlog at take -- versus so that broader we been so be it vehicle semi very space why to in Obviously, has your in talk using Process you about little additionally, from we that this Mike -- then semi line good, offering you I for mentioned continues spot there? portfolio, to why of be different I lubrication has peers and but you're the bright that good. strong? And some maybe on can continue a to peers bit both maybe in a a last broader sustainability is more top of it. your sustainable maybe But Pan loosely quarter, It's the about recognizing another trends the particularly picked the perspective.

Mark Sheahan

pricing a take months I'll seeing the of some think stab don't of. still I which things. the sure. over XX a it. did we couple know, I actions last, I we're so, benefit nice Yes, at Obviously, or mean

on that at into In ago, our into semiconductor, segment, we've look which numbers, were year pricing So and whether there that, really back pump a of the actually our there. But when that year of as though, working have that diaphragm into it. Notwithstanding that. in new in it's improvements orders outlook a making I we a revenue the been things the the factory our with done in throughput have look think for got growth wasn't high down semiconductor products the look have is to year, this growth. you throughout team are lot getting so some we going good, baked embarrassingly are business, you 'XX, the headline contributing across there. The of really where portfolio some good does orders has and nice a efficiency of you lot line and of falling and investment kind 'XX job when

And work in Lubrication our hopefully, of so robust, service catch-up overall. like as good is year feel then way left. through roll we've this is team a business just got as into doing And for remains us. backlog we kind XXXX. Vehicle well And we we the really

expenses, actions marketplace. And they've we ability factory, a pricing we rate course, execution, of launches, that to but of drive VS, seeing the able categories. had with to the It's product profitability an and of really really also there. have we're Of done we've both they've high in the combined at hold nice new extremely out industrial in a decent that lube combination that's have those watching growth the taken deliver and and some got been superior

Our environmental doing businesses are well.

we seems a does after there. coming have the where Gas bit up landfills. around big the and players in where in couple started years little investments. have landfills. It making Of to of business, that business course, analyzes methane manage the off gas the weren't of the Analyzer that And the fluids landfill we a also QED that They that's pick like

line, product we're think And benefiting we've great and there. got a so I

a have factory good performance. We team, strong

execution great driven really new in our and think backlog, it's that's factories, product some combination nice this reduction of a year. the I pricing, that results of launches

Unknown Analyst

really and on the building M&A the That's of switching pipeline on the color getting And answer. a maybe for maybe that whether be? helpful. that little building appropriate robust feel the you development you of be traction and now like comment a bit little Could need working Mark. pipeline with pipeline progress to bit. process you're I gears a priority. you would with and the where kind Any know Super has time. been that has Obviously, team on been helpful, Inga

Mark Sheahan

for could around up XXX a M&A company I that And the to come had them of with have people half think Thanks. pipelines. say Inga developing years walked give working asked have Yes. than companies. less of Ryan have might pipeline ago, their me a would and you in I with tell will been bringing years be now about and on I the Inga But target. I was done in January. fully might understanding who Patrick, M&A Thanks of be job and works that of units, for a up X it an vetted, our where of been the who We we my it to what And they attractive good really strategic companies. It's actually X had knew the knew and team almost with company. We nice fit to Inga's would contact. I why interesting. business ideas probably couple years,

we've through sense the pipelines and them where didn't the so, what we companies to -- doing where strategic last really of taking been out a those it made good in vision. year or really So adding sorting some is and have

today, They've been all as fully have I vetted. over sit I So we XXX our think in companies pipeline. here

actually with we're go quality Of terms than of of course, there's we're the of you we're been of the time in. things interested but not, in that I do of quality quite that like the lot for a the discussions deal today into or some and the can shape feel pipeline, we've a pipeline whether robustness companies having the better in that

Operator

Deane RBC Markets. with Capital of line the Dray from comes question next Our

Tyler Voigt

This is any there, question, monthly well Or a of as on give trending sense on? Tyler for how just you as us what decelerated as Was were? cadence Dean. for first quarter My in can October. went color things the Voigt sales it are the

Mark Sheahan

Yes.

orders interesting, and with absolute we did. the point. because the of there. think into you, as it But last in was just ahead terms And level orders at get time of of seeing The pretty the right, people with Graco, chain that supply pricing been hanging be characterize the of type thing. that of to are all to stable the honest we're year across cadence placing queue, I stable, constraints it's that I'd comps this in stuff

Tyler Voigt

channel Great. on and at then That's you touching the inventories do home center mind in really both paint? helpful. And pro how just looking are the

Mark Sheahan

topic, in our much level the shape. inventory that center seeing Yes. pretty of with When we paint we home marketplace. I we stores, the that where activity that case which up pipeline is the retail a that, particularly is good probe team product ago. and tell that on The do the sell you the the frequently, that was at to. feedback of we're It year can't in they're matches in getting

things this trying that in shape. are may a they catch-up been playing inventory ago, like their year feedback a think up of have good feel I getting levels. And terms little in of still bit is we're folks year, build to that the pretty

year. that traffic The know have they've have I that traffic big again, been But reacted we're as down. center has this excess think that to they is any now. through inventory probably right the came I foot had challenging spot Foot their home think good that. a may in worked down, retailers You

David Lowe

them, and you're a maybe This the really chain. It It's inventory others spare the our much parts to they excess because excess other the know companies David. in in channel and may when channel to talking industrial outside don't our on like destocking they in volunteer Yes. partners supply helpful that stop that newer inventory -- more process have factor, you side, this, story. the is working inventories are but just about I'd read to of confidence space. really isn't because significant off in businesses remind

we good that degree inventory concern. through us those overhang to retail. and periods demand, confidence an of wholesale and high have bad greater gives through in times and not segments, level of any So lesser there And continue of is or X have a that equals

Operator

question Saree Jefferies. with next comes from Our Boroditsky

Unknown Analyst

James margins. on about contractor wanted is to Saree. I This for And talk

levels year-over-year and lower a kind despite the sequential improved revenue significantly like quarter-over-quarter, basis. like So margins of on

So please cost and margin provide on talk benefit can about the the you price, also, level? of from can color magnitude more you And the sustainability product mix? of

Mark Sheahan

going think price able there. sure, for Yes. for we But fine-tune don't to has the are I a be components nice impact to different had CED.

and You you to when really to parts like really has was might expensive we and special costs most all suppliers freed hard actually remember the door. That the burden how roof. And of in going accommodations and year ago, components were that about through had get to were that contractor a talking electronic our to input things get make up. bearing very

So things subsided. that some that hyperinflation a that the on they of and lot has of was is purchased going

pricing designed pressures that that really were happen. the offset Our had business, took, we we that and cost to actions seeing the in we're

So fixed to maybe we you're that a of -- They're their last go seeing would as managing margin market not job and right in more the of team rates business a I are seen years. The not normal over is in great couple of believe they couple understand last expenses. the had they years. they're back what doing dynamics were sure that good the now level, kind on spending with than last that keeping they're an do incentive in as year adding have I our to some year. P&L are pleased how contractor related they expenses eye were cost And not and making variable base. I'm to this think our and We higher the of payments

But business. has ever XX% if bit addition you're margins. they're been from the of high. know that seeing Overall, don't the on activity that what in to margin I a in little there's operating line business that So gross tailwind at

touched we that think might I have level. in QX,

of the work at which I we long said that run of think year, we rates way as continue rest the seeing, will. we're operating volumes in through we as to our really believe the are his as we comments, profitability we're as sustainable that Chris that pretty confident those But

Unknown Analyst

Thanks helpful. the color. it. staying contractor. That's detailed for with very Got And

commercial kind about precious. of talked interest how talk you one Contractor the side? kind any large commercial seen out you headwind performance, different residue can within the of So new solid since in markets remains end about have played your customers quarter And from the of while kind or on pressure of

Mark Sheahan

Yes.

to look moving I I were the We've paint in if So you ton there's right? got parts, the pro mean, a of at mean, CED, business side.

the We side of business. have tradesmen, DIY the high-end

spray have form. We

protective have We coatings.

We have line striping.

have We stucko texture. and

We have of within different kinds segments contractors. all

So one when market be feel speaking, them, year. how businesses housing of down. I bad headlines around would uncertainty be all they how in and this any you they the that, I about good pretty say is generally up might in all read the that the or might performed about it our

anything For in coatings our the sure, than there Marine, has protective have tough. call people most has foam we been center Pro good. The think home Protective been what foam, would business expected. spray I better & business has high-performance coatings, in And and what held

has of America weakness containers put -- on up limited when look has been and business there's get the start cargo. you is when really Pro on North go coatings a you That we've So there. to business basis. And I think well that outside China. Asia, pretty pretty really Europe, they dropped significantly. the held ships think -- where over talking X they to for it's to container in things limited year-to-date seen the on has business you about And One I for

there. I a actually as just while. we're equipment ran not selling So for business the much

where kind over and these the then through market quite month at a I down softened bit. has down about a was and construction it's it's there And of live in over really in ago, there China, you up So periods a period. then

stuff when there the that years what you'd but see You was But ago. Unfortunately, you'd because cranes, around happening. X vastly see pandemic. would over had I ago, is the of kinds been cranes, long you'd it drive around cranes, all than X the see you no see city and but it at activity different which of years was all

our of way it's that really has surprising kind has. not out business So the it too that played

Operator

the Our Markets KeyBanc next from Inc. line question comes Jeff Capital of Hammond with

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

Matt Summerville

what the maybe you being you detail kind pushing Can you, adverse right you to business, there? can projects square little you're but just bit made healthy, Powder finishing you comments the the of kind just on Can as timing. more be help backlog Mark, may provide Gema seeing to talk me a of about as

Mark Sheahan

Good Yes. question.

line the And of extruded they these the systems user experienced a a gama used the are particular, their side And than X are And what guns the those aluminum -- the softer So that systems. our coatings. really those other been of there's we make And what a dozen business, and aluminum one is Powder to and business, equipment different of conveyor and there's applications. accessories they're equipment. high -- pieces really we or systems has Powder are side, don't Gema business. And in in half the a years. know, kind big so And level, I vertical couple that materials really a pieces of of last at for focuses of things. Powder over acquired types years and lot get ago, business coated on Coatings, packages with extruded large

a revenue still factor we bit in backlog try But will some on create systems volatility to into Adhesives. & now and little of Industrial a kind our do good. the within of Anything So does overall sort a the say that on bit this what the liquid business of can it standard -- pretty Sealants parts year. the ship Gema I between orders has are end of distributed is and there hopefully the annual of guide all Gema that side see be outlook. accessories lumpy. And terms the Graco little side the and the we businesses, been some other which finishing actually basis. have of volatility results But Powder business business. the quarterly would product, there's equipment, in the other of mirroring of We

And of so Powder the we're year, know knowing we pretty be going what ship and feel to to confident for hit those about the out able the of we still backlog what's numbers. going to rest that

David Lowe

I of to is Mark's Yes. sign-off the, more this or based tends in again. David our closure about systems, underline history Excuse would in be it, lumpiness me, call active the on point of QX.

So level a a that of more We there in absolute we'll sense have business we're a don't supplier elevated confident in see a in systems businesses. that are we the complexities don't QX. number. And our primarily of component see most as

a sign with related is HVAC yet. And us the supplier or final our the supply related up fully their meaning to to factors the of the held sometimes, completed And robot the gotten by out off supplier, supplier conveyor chain fleshed where powder or not with work system and and Eastern hasn't COVID but couple in markets say, America logistical the particularly challenges installed. coupled lot those last problems, frankly, Asia are, the and new too, sophisticated in South of I'd the systems Europe, years, of a in in especially are complex project, of and

Matt Summerville

bit then And it's into as you pricing early, it's go little as you are of but how top Obviously, thinking sure a 'XX? mind. Mark, just about I'm a follow-up.

Mark Sheahan

Yes.

is going normal in We more than to for to be normal a it pricing years running of Inflation year environment. a few try it's I higher realize was a to think X.X% us. still ago. X%

lift lift. increase, to in So level of like of terms absolute price the

in going price will we're time it historically. let's now, we've be more think to XXXX, thinking would what be done in doing be than right frame. But higher say, have XXXX we're and in one line the been, We'll there I what be with increase. it January, we will

Operator

Maria next William Larry Our of at the comes line from De question Blair.

Lawrence De Maria

as of an kind 'XX. First you 'XX, for mentioned semiconductors question, opportunity

sit through it of market we feels comes a sideways contractors. there of these opportunities, are look here specifically down, to sort we As other and look bit you have a as headwinds big organic little for today, backlog 'XX some segments because

to words, as as things come backlogs out the sort in So it flattish we seems look to down. looking right of other the be

see next trying besides if Just data price higher could volume on to drive there's that side the anything year?

Mark Sheahan

good a question. it's Yes,

I got to in the out the in we're and the be manufacturing. launch to on involved coming lot capitalize big on going think obviously is already plan have. think macro electric opportunity. The energy There's with that drive and I have out even hot. battery movement of of turn the products advantage. I think months, that some we pumps. some that to next I trends to from we portfolio ones the There's on still air-operated the in pumps and we that. would And we'll there more We're capitalizing heavily a We XX products pretty some able that on alternative space things

equipment Solar we over going all portfolio that the our place. making that up And panels are fine-tuning obviously, products particular offer in we're of and space.

kind call which expecting are people So us in new all 'XX. in I'll sluggishness, all, it, hopefully are portfolio, going to any macro the offset help of there are nice products coming within out that

Lawrence De Maria

second, X here. then questions And quick just Okay.

so was the you're You and Is here full it, in pull think quarter missed apologize about number also, if some can back some for give stock, and doing I to but price specifically? what -- there I share maybe for sounds more. a you like target the And us year? volume repurchases

Mark Sheahan

Yes.

I So we disclosed think that.

We of will disclose the terms purchased. that levels in absolute we've that

that I information. a buy like and project to when do flow stock think any we really we how treat other we on try we the to story company. much capital extent come Chris evaluate when is here And to feel there's with within of number. a consider We short, valuation. up the overall there. market we might And we long that like look mismatch the a cap at the to company What cash gave discounted it analysis that Graco. And the buy we and run

market. I extremely that number in is worked I We has last I of course, the more mismatch we And well. we are approach The market the when become think active in that our think that broader. Historically, think active XX%, dozen me IRR or which really around shared saw that good buybacks own or I about. is over stock somewhere our on feel with is years, XX% David the last so

obviously, year as has stock. quarter, in gotten opportunistic continue this goes it, and been with in involved on. to So there be we'll some here the the weakness We've

David Lowe

that's were more discounted because Graco Yes. briefly flow/ROI, it. aggressive. the move opportunistic. do time of described, think short-term a to And the to from cyclical. were those to that, so I the often. And certainly Mark because cash not And in serve while think remains And and the 'XX, times word we to way take be opportunities cyclical appear aggressively when necessarily process 'XX of advantage the really like way keep the positioned way. And so tends key mind We markets, strongly there -- of go and that us through is time may seem of think really days is classic they Street we to dark, that -- I as that are in and we in be something it's 'XX discrepancies when will in every think I we

Lawrence De Maria

luck. price would volume if And Good you helpful. have the number, be that

Operator

next the KeyBanc [Operator from Instructions] Jeff of Capital Markets. question line Hammond with Our comes

questions, no the I turn now Sheanhan. to will conference over are further There Mark

Mark Sheahan

interest want in for thank and loyalty I thank participating for continued your to great Graco. again, everyone and Have a you day. Well, Okay. call, in today's

Operator

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

Graco (GGG) 26 Oct 232023 Q3 Earnings call transcript