Graco Inc. (NYSE:GGG) Q1 2024 Earnings Call Transcript

Matt Summerville: Thanks guys.

Operator: Our next question comes from Jeff Hammond with KeyBanc. You may proceed.

Jeff Hammond: Hey, good morning, guys. Just on — I guess the contractor seems to make the most sense in terms of new product introductions and timing. But anything you’re seeing in terms of bigger orders or systems that would have gotten just pushed out from 1Q to 2Q that would kind of lend itself to the weaker 1Q and maybe a better 2Q?

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

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

Mark Sheahan: Well, I would just go back to kind of what I said before. For sure, our ability to forecast is handicapped a lot by the fact that we’re a very short-cycle business. And any one region in a 13-week period could look really good, and then the next one, they may not look quite so good. The way I look at it, we’re 13 laps into a 52-lap race, and we haven’t changed the tires yet on the car. So I think that there’s plenty of year left here. All business units, all regions are pushing hard toward growth, and we’ll do our best to make that happen.

David Lowe: Yes, I would just add, if you take a look at the outlook chart with the colors on it, you can get kind of a sense of where we see — are feeling okay about the opportunities with greenish in the industrial segment and in the Americas as well as I think some possibilities in that Contractor space, for all the reasons that Mark touched on. I’m hopeful that we will continue to see some respectable momentum in the European market, the EMEA market for Contractor. And I think you can get a flavor for how we have equalized the colors in Asia Pacific. Definitely concerns there across the board. We do have some bright spots there, too. But the size of China, and some of the things that we’ve seen in construction and industrial and in process markets and other things, at least at the moment, at the 13th week lap, gives us a little more caution there than in the other parts of the world.

Jeff Hammond: Okay, great. Thanks guys.

Operator: [Operator Instructions] Our next question comes from Walt Liptak with Seaport Research.

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

Mark Sheahan: Well, I would kind of say what I think we said earlier, which is essentially that we started out slower than we thought we would, particularly in some of the industrial product categories and also some of the pumping equipment that goes into factories that we call process transfer equipment. These are like diaphragm pumps that have a lot of different applications. And that wasn’t just limited to the Asia Pacific region. That was, I would say, our expectation would have been higher for those product categories in all of the regions than what we actually experienced. And if you have an idea of what the cause of that is, send me a note, because it just seemed like it was a general slowdown compared to what we thought we would have to start off the year. The good news, of course, is that things seem to get more on firm footing here. And as we kind of work through the quarter, things look a little bit better to us.

Walter Liptak: Okay. Yes. That’s great. And in Europe, the Europe numbers looked pretty good, considering everything in Europe. And so I wonder, was that related to the powder business? I think that amount out there is pretty strong? Or are you seeing a different trend in Europe? I think you made some comments earlier as well.

David Lowe: Well, we had some lift in Europe from the Contractor side of the business. And we, I think, mentioned the protective coatings business, we called out the foam. I’ll volunteer that the sell-through to the Pro paint channel was seen as pretty good. And I think those were probably the more positive pieces of the story. On the — I’ll call it in the other segments, on the Industrial side, I think the market we’d characterize as being a bit more anemic. And of course, in Europe, the powder market — the powder equipment market is a larger percent of the Industrial segment than in the other two regions. It was flattish for the period. And then in the Process space, I think there we got off to a slow start. Channel orders that we were hoping to receive from the channel just weren’t there at the beginning of the year.