Mark Sheahan: Yes. We have — each of the business units has engineers that are looking for ways to take cost out of products. We do that continuously. And then of course, when we launch a new product, a lot of times, we’re looking at how do we take cost out of the old one, so we get kind of a double whammy there if it works the way according to plan. When it comes to the factory input costs, we did start to see a little bit of favorability creep in, in the late — in the third quarter and into the fourth quarter in terms of what we call PPV, purchase price variance. And so if that trend continues here into 2024, I think that, that should be more or less a tailwind at this point. I don’t want to predict it, but we don’t really see the big inflationary pressures hitting the way we have over the last couple of years.
So our hope is that if we keep our price increase in line and we can do a good job on the cost that there could be decent potential for gross margin expansion in ’24. That’s sort of what we baked into our internal plans.
Joe Ritchie: Got it. That’s great to hear. And I guess, look, you took a look across the different regions in your segments and what does stand out to me is what’s happening in the industrial segment in the US or in the Americas. The growth has been really good, had been in 2023. I guess we’ve been talking a lot and writing a lot about mega projects and ultimately, what that means for industrial growth going forward, whether it’s this year or next. How are you thinking about the investment that’s happening in the US and ultimately, like when you start to see it flow through your own P&L?
Mark Sheahan: I think it should be good for us. I can’t say that we’ve actually started to experience it. I can’t point to specific projects that we’ve gotten as a result of that. But for sure, any time they move a factory around from one location to another. They usually don’t rip out the old Graco equipment and put it into a new facility. They usually just rebuy the stuff because in terms of the overall capital outlay, our stuff really isn’t all that expensive and it’s just easier and better if they take advantage of that. In North America industrial, they’ve really done a nice job executing on some of the initiatives that we’ve got around electric vehicles and battery production. And in addition to that, I think that the powder business in North America has actually performed a little bit better than where it had outside of the North America marketplace.
So feel good about the team there and the growth and what they’re working on. I think they got their eye in the ball and they’re focused on the right things. And some of the products that they got coming out as well in the electric pump category should drive some incremental growth because a lot of these customers, if they’re moving into a new facility, they’re also looking at their energy consumption. And if they can put in an electric drive pump instead of an air dried pump, they save a lot of energy. And so we think that there’s going to be the potential to get some incremental business with those new builds, but also, we can go back into old customers as well and try to persuade them that there’s a payback and ROI if they move to an electric platform.
So lot of good things happening in industrial, and I think they’ll have — I think they’re in a good spot to have a decent 2024.
David Lowe: Yes, and I would say, just adding to Mark’s comment that there are opportunities for reshoring or nearshoring whatever you want to call it, that I think does play out over time. For example, I can use an example in my own finishing experience, where about a decade ago, the — a couple of large Japanese automotive OEMs decided to start a couple of greenfield facilities in Central Mexico, sort of away from where the traditional automotive manufacturers were operating. And from the time they initiated the project when they started making cars, took about five years. And the reason for that is it took the better part of five years to flesh out a vendor base that was suitable for the standards of Japanese car companies. So on the higher end of projects, I think it should be a positive as alluded to over the next several years. But things like supply chains and so forth don’t come together overnight, especially in the higher value-added product categories.
Joe Ritchie: Got it. That’s great color. If I could just fit one more in, just real quickly on the pension settlement. What’s left on the pension at this point? I know that you did the $147 million this quarter, but what’s left on the liability side?
Mark Sheahan: I think we have about $127 million remaining from the PBO after we did this round of the derisking.
Joe Ritchie: Okay, great. Thank you very much.
Operator: Thank you. One moment please. Our next question comes from the line of Jeff Hammond of KeyBanc Capital Markets. Your line is open.
Jeff Hammond: Hi good morning.
Mark Sheahan: Hi Jeff.
Jeff Hammond: Just on process, I mean it’s just had a tremendous run of growth and I think the growth stepped down 4Q and you’re saying it fits in that low single digits. Is this — are you seeing any real moderation within that business or are we just finally kind of catching up the tough comps?
Mark Sheahan: Yes, I think that — like David said earlier, the semiconductor business is probably the one that we would expect to see a little bit of a pullback in ’24. The expectation is that they will actually start to ramp up their spend again kind of midyear 2024. But of course, last year, at this time, we had these huge backlogs of orders from customers and while we haven’t worked down all of those, we worked on quite a bit of it. So outside of that, I don’t really see much in terms of things that have us concerned. The vehicle service side still looks pretty solid. Our industrial lube side looks good. We still have plenty of opportunity there to gain market position. The process pumping business looks decent. We have an electric drive diaphragm pump that we’re pretty excited about getting put into customers to drive some incremental growth there.
So I feel overall pretty good about all of the business units in there with the slight exception of the semiconductor space.
Jeff Hammond: Okay. And then — so this looks to be your last year of kind of growth capital. Should we expect into ’25 that you start settling back in that $60 million CapEx or is there in a new funnel of projects?
Mark Sheahan: No, I think we’re in great shape facility-wise once we get through 2024 and I would I would highly expect that our normal maintenance CapEx plus improvements is going to be somewhere in that $50 million to $60 million range.
Jeff Hammond: Okay, thanks a lot.
