Graco Inc.

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 opening remarks from management. During this call, various remarks may be made by management about their expectations, plans, and prospects for the future. These 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 1A of the company's 2025 annual report on Form 10-K and in item 1A of the company's most recent quarterly report on Form 10-Q. These reports are available on the company's website at www.gradeco.com and the SEC's website at www.sec.gov. 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 Knudson, Vice President, Controller, and Chief Accounting Officer.

Good morning, everyone, and thank you for joining the call. I'm here today with Mark Sheehan, David Lowe, and Sanjeev Gupta. I'll begin with a brief overview of our first quarter results and then turn the call over to Mark for additional commentary. Yesterday, Breaker reported first quarter sales of $540 million, up 2% from the same quarter last year. Acquisitions contributed 5% growth and currency translation added 3% growth, partially offset by a 6% decline in organic sales. Reported net earnings were $119 million, down 5%, or $0.70 per diluted share. Excluding excess tax benefits from stock option exercises, adjusted non-GAAP net earnings were $0.66 per diluted share, down 6%. Gross margin decreased 60 basis points versus the first quarter last year. The benefit from our pricing actions helped offset higher product costs from lower factory volume, lower margin rates from acquired operations, and incremental tariffs. Tariffs increased product costs by $7 million in the quarters. Operating expenses increased $9 million, or 7%, in the quarter. Excluding $5 million in incremental expenses from acquired operations and the effects of currency translation, expenses were flat. In the quarter, the operating margin rate in both our contractor and expansion market segments was 24%, consistent with the same period last year. Industrial segment operating margin was 32%, down from 34% in the prior year quarter. The decline is due primarily to unfavorable volume and tariffs that were not offset by price realization. Total company operating earnings decreased $6 million or 4% in the quarter. Operating earnings as a percentage of sales were 26% compared to 27% in the same period last year. The adjusted effective tax rate was 20% in line with our expected full year adjusted tax rate of 20 to 21%. Cash provided by operations totaled $120 million for the year, down $5 million, or 4%. Cash provided by operations as a percentage of adjusted net earnings was 107% for the quarter. Year-to-date uses of cash include share repurchases of 189,000 shares, totaling $16 million, dividends of $49 million, and capital expenditures of $12 million. These uses were partially offset by share issuances of $40 million. A few comments as we look forward to the rest of the year. Based on current exchange rates and assuming similar volume, product mix, and business mix as in 2025, currency is expected to have a 1% favorable impact on net sales and a 2% favorable impact on net earnings for the full year 2026. For the full year, we continue to expect unallocated corporate expenses of $40 to $43 million and capital expenditures of $90 to $100 million, including approximately $50 million for facility expansion projects. 2027 will be a 53-week year, with an extra week occurring in the fourth quarter. And finally, in the attached materials, we updated our outlook slide to highlight performance by segment and region, with the size of each color dot indicating its relative size versus the others. With that, I'll turn the call over to Mark for more details on our segment and regional

Thank you, Chris. Good morning, everybody. Overall sales increased 2% in the quarter with acquisitions contributing 5% and foreign currency adding another 3%. That growth was partially offset by a 6% decline in organic revenue. Organic revenue started the year slower than expected, particularly in January, but business activity improved steadily as the quarter progressed with bookings up 3% at actual currency rates, driving nearly a 26 million dollar increase in backlog primarily in our industrial segment if those orders have been converted to revenue within the quarter organic revenue at actual currency rates would have increased two percent and total sales including acquisitions would have been up seven percent the middle east region represents about 35 million dollars of sales on a full year basis for graco To date, we've not seen any significant impact on demand or operations, though the environment remains uncertain. We are staying close to our customers and channel partners and are monitoring order patterns and logistics carefully. From an exposure standpoint, the contractor segment would be the most impacted, primarily related to our protective coating product application. Let me provide some additional color on our segments and regions. In the contractor segment, sales increased 2% in the quarter, with acquisitions and currency translation each contributing 3%, partially offsetting a 4% decline in organic revenue. Within the segment, our foam, polyurea, and protective coatings businesses continued to be bright spots, supported by strong global demand tied to infrastructure, border wall, and data center projects. That said, construction demand remains softer than we would like, particularly in the Americas. Housing starts are expected to be relatively flat year over year, with fewer new home sales and only modest improvement in existing home sales. Overall, the market has shown limited growth over the past four years, and we expect those conditions to persist this year. Turning to the industrial segment, sales increased 4% in the quarter, with acquisitions contributing 8%, and currency translation adding another 4%. This growth was partially offset by an 8% decline in organic revenue. Despite the organic decline, bookings were up 5% at actual currency rates, driving a $23 million increase in backlog. If those orders have been converted to revenue within the quarter, organic revenue at actual currency rates would have increased 6%. Industrial Americas performed well. delivering revenue growth despite lower project-based activity in our powder group. Bookings in the region were up double digits, supported by broad-based strength across multiple end markets. EMEA and Asia Pacific were more heavily impacted by the timing of completion and acceptance of project-based activity, which drove the decline in the quarter. That said, both regions saw activity improve as the quarter progressed, with quoting levels moving higher. In our expansion markets segment, organic revenue declined 5% in the quarter, driven primarily by our semiconductor business, which was coming off an exceptionally strong prior year comparison. Semiconductor delivered its largest quarter of the year in 2025, growing 51%. Despite the tough comparison, semiconductor demand remained solid, with first quarter bookings up at least 20% in each region. We're also seeing improvement in our environmental business. While the year started slowly, activity has picked up meaningfully with a strong start to the second quarter and bookings are trending positive year to date. Moving on to the outlook. Despite the slow start to the year, we're encouraged by demand trends across our broader end markets. We saw a meaningful pickup in both ordering and quoting activity in our industrial and semiconductor businesses throughout the quarter. And based on current order rates, Strengthen these areas should help offset continued softness in the contractor segment. As a result, we're maintaining our 2026 revenue guidance of low single digit organic growth on a constant currency basis and mid single digit growth, including contributions from acquisitions. Looking ahead, second half comparisons are more favorable, reflecting an easier contractor comparison in the third quarter and the expected timing of project activity in the industrial businesses towards the end of the year. Finally, I'd like to take a moment to welcome Sanjeev Gupta Degreco. Sanjeev comes from General Motors, where he spent more than 20 years in finance and operating roles across the globe, most recently as CFO of GM International. He brings deep experience across corporate finance, operations, manufacturing, and supply chain, and a strong track record of leading global teams. In addition, I want to recognize and thank David Lowe for his more than 30 years of dedicated service as he prepares for retirement. David's leadership, deep financial expertise, and steady guidance have played an important role in shaping our company and supporting our long-term success. On behalf of the entire organization, I want to thank David for his many contributions and wish him the best in his next chapter. In closing, I want to take a moment to recognize an important milestone for our company. On April 26, we will celebrate our centennial. This milestone reflects the strength of our people, the durability of our business model, and the deep relationships we've built with customers and partners around the world. While we're proud of our history, this anniversary is really about the future, continuing to invest in innovation, supporting our customers, and building on the foundation that has sustained the company for a century. That concludes the prepared remarks. Operator, we'll open it up for questions.

Thank you. The question and answer session will begin at this time. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Your question will be taken in the order that it is received. Please stand by for your first question. Our first question comes from Dean Dre. of RBC Capital Markets. Please state your question.

Thank you. Good morning, everyone.

Morning, Dean.

Hey, can I add my welcome to Sanjeev and to wish David all the best?

Appreciate that. Thank you. Thank you.

Since we're in kind of an uncertain macro here, Mark, maybe you can just kind of take us through the major verticals and kind of What surprised you versus expectations? I know housing remains tough, but semiconductor looks like that's a positive side. And then just same thing on the geographies. And if you could elaborate a bit more on the Middle East exposure for contractor. Thanks.

Yeah, I guess I would start out at a high level and just say that our industrial bookings in the quarter were actually up you know, mid single digits, which was good. And unfortunately, we weren't able to convert that into revenue that you all saw. But in terms of how that mid single digit booking growth took place, it was really across multiple product categories, look at finishing, process, our lubrication businesses, both ALE, automatic lubrication, as well as our vehicle service business. And a little bit of pressure in our sealant and adhesive business offset some of that. But overall, I was pretty happy with the growth in industrial in the quarter. The powder business again was influenced mostly by some project activity on the bookings front that booked right at the end of the quarter that we just couldn't convert. Those projects usually take time between booking and billing. And then the overall game of powder business again in aggregate was in line with our long-term expectation for the full year of kind of the low single-digit organic growth, constant currency. Obviously, the home center and the paint channel continue to be a little bit of a headwind for us. I wouldn't characterize them as down significantly, but they were down in the quarter. We did see nice growth in the areas that I mentioned in my script on the high-performance coatings and foam business that wasn't quite enough to offset all of the headwinds that we had in the traditional paint and home center channels. But overall, booking for the quarter was only down 1%, which is okay in an environment where we're still experiencing some pain. When it came to the environmental business, yeah, the bookings and semiconductor were fantastic. We're starting to see a little bit of a pickup on our environmental business, and I would say that the HIP high pressure business that's in there as well is also experiencing, you know, kind of growth within line of what we're expecting for the full year. Geographically, you've seen the numbers, but Europe is doing okay. Asia is somewhat influenced by the adhesive business that I referenced previously on the industrial side. So we're off to a bit of a slower start, but the team's pretty optimistic that we'll be able to make that up as we finish out, you know, the next three quarters of the year. And North America, you know, has been okay here so far this year where, you know, booking rates are up kind of in our low to mid single-digit guide. So all in all, I wish we would have been able to convert more of the bookings into billings. It's only 13 weeks, and we do feel like we've got, given the order momentum, that we've got a good chance to be able to get to our low single-digit guide for the full year.

Great. And then just if you could follow up with any specifics around the Middle East exposure. You called out contractor. And then I'll give you my follow-up question. You said tariffs were a $7 million bad guy for the quarter. Can you talk about pricing? How much price action have you taken? And is this a potential year of a second price increase? What's your crystal ball say?

Yeah, so I'll handle the Middle East and give just a quick thing on the tariffs, but I welcome my colleagues here to chime in on those as well. Middle East has not been a problem for us so far. As I said, we're kind of monitoring the situation. We don't have any hung up orders or anything like that that we're really that concerned about. Maybe the bigger concern would be with respect to if this blockade extends for a longer period of time, It will create some pressure with respect to the materials that we move So you think about paints adhesives? Those are materials that require quite a bit of you know petroleum based products and the extent that there's pressure there and those products increase in cost to consumers etc that may you know eventually make its way into our business. Right now, we're not that worried about it. My personal belief is that things will get cleaned up and we'll be able to move forward, but that's probably the bigger unknown risk for Greco and every other company that's out there moving those kinds of materials, at least here in the short term. On the tariff front, I would say overall, we're doing a good job. I think we've really offset the cost pressures that we've seen in the P&L from input costs so far year to date. And really the pressure that we saw in the gross margin line in the quarter was really in a couple areas. One, obviously volume, running a little bit below what we were planning for, really due to the cadence of the orders coming in at a softer pace at the beginning of the quarter versus what we saw sort of at the End of the quarter our pricing actions are really offsetting a lot of that Activity that we've had I also point out that the mix in the quarter the mix of the products that came in Was a little bit unfavorable for us as well So I really have no concerns on the gross margin line for the rest of the year I think the teams are doing a great job managing operating expenses which are actually flat to down slightly in the quarter and So, you know, we're managing the P&L appropriately given the level of business that we had in Q1. Any other comments from you guys?

Well, on the pricing side, I think that we have, the way that we're looking at it, we have covered tariff costs, and there have been, you know, some volume-related things that made that a little less effective. But we have for most of our businesses beginning last year, we have been pursuing around the world our annual pricing adjustment drumbeat. In fact, we started a little earlier in the regions than we would ordinarily. Here in North America, we have a handful of key channel partners that we have agreed to pricing adjustments that are going to begin to become, I'll call it live, early or sometime in Q2. So we're feeling really good about the implications of what those can also help us with as we get through the balance of the year.

That's helpful. Thank you. Thanks, Dean.

Thank you. Our next question comes from the line of Jeff Hammond with KeyBank Capital Markets. Your line is now open.

Hey, everyone. This is Mitch Moore on for Jeff. Good morning. Good morning. Just on the low single-digit organic guide, just maybe with this lower start of the year, I think it implies mid-single-digit-ish growth through the remainder of the year. Could you just help us frame the segment-level building blocks to get you there and What's giving you confidence in that outlook?

Thanks. Yeah, if I had to point to one thing, I'd say we're up a little single digit on our bookings for the first quarter. So I think our bookings rate lines up with what the guide was. And so that gives us the confidence that we're going to be able to get within that guided range when we look out through the whole year.

I don't know if you guys have any other comments you want to make. I'll also say that, as Mark mentioned, the backlog build in the quarter, but also subsequent to the end of the quarter, into april here we've also seen another 21 million dollar build in the backlog so the order rates are there to support it it might be a little bit lumpier on a quarter by quarter basis but we have confidence we'll get there by the end of the year okay great and then just for my follow-up um i know we touched on tariffs a bit but just

Is there any updates you guys can provide with the updates to the Section 232 tariffs and if that changes your expectations for price costs for the year?

Thanks. I will say that the change with the 232 where they're moving from direct aluminum and steel to the full component, we're still working on assessing how much that's going to impact us. We do have some highly manufactured equipment. So when you switch to a full value of the imported good, it would imply a higher tariff. But for us, a lot of our stuff is already manufactured here. So a lot of the import of the aluminum and steel is typically in its raw form.

Okay, great. Thank you.

Thank you. Our next question comes from Brian Blair of Oppenheimer. Please state your question.

Thank you. Good morning, everyone.

Good morning, Brian.

Welcome, Sanjeev, and congratulations, David. I think you ended up a little short of Dale's tenure, but a great run nonetheless.

Hey, I can maybe consider staying another 18 years.

All right. I would like to follow up on... The backlog expansion Q1 and then Q2 to date, just to level set, how much of the total build has been your GEMA business? Have there been project-regiment deferrals, or is this strictly a matter of order timing? And is this type of backlog build or the magnitude of it significantly out of the ordinary for the early part of the year?

Yeah, I think that they're pretty similar. I think if I look across the legacy Graco industrial businesses and the backlog that we built there, as well as the backlog that we built in the gamma business, including projects, et cetera, I didn't see anything jump off the page at me that says that they're heavily weighted toward the powder business. I think it's generally pretty consistent across both those segments.

And I would add, especially the orders that we've seen since the close of the quarter, it's been quite balanced in the well, to use our internal terminology, the industrial division, which is the legacy Graco, the original legacy Graco, plus the game of business. As part of this exercise, we ran some stress tests. And being an old sales guy, I kicked the tires pretty hard on not just the industrial side, but also on the contractor side. I kept coming to the same place that given the level of activity we're seeing in industrial and not really relying on a meaningful uptick in contractor, low single digit is achievable.

Okay. Appreciate the color. And following up on the revised tariff framework, Again, just to level set, is there a meaningful assumed change in net cost impact for your operations? And then perhaps more importantly, as a largely domestic manufacturer, do you see any incremental competitive advantages or opportunities under the new structure?

Yeah, I don't think there's any obvious competitive advantages. And the way I'm thinking about the tariffs here is, short-term and long-term. The big question is, are they going to stick? The tariffs that are in place today, obviously, the Supreme Court ruled the way they did, but they put in new tariffs. When you look at if they stick, incrementally, it's not going to have a big impact to Graco in terms of the absolute level that we're paying. I will note, and we did talk about this, Mike SanClements, You know, we will be applying for our tariff refunds like every other company and as those come in, you know we are intentional would be to. Mike SanClements, highlight those in you know our results, so that you, you know what they are is they come in. Mike SanClements, At this point, you know until we actually see the refunds we're not really going to talk about the levels or the amounts or anything like that, so I think from a. modeling perspective it would probably make some sense just to leave them out and when they come in we'll break them out and then you can know what they what they are but um i to answer your question again to reiterate when you just think about the absolute level of tariff that this company is incurring with the new structure that's in place it's pretty pretty similar to what we experienced before the new structure was put in place okay understood thanks again

Thank you. Our next question comes from Matt Somerville of DA Davidson. Please state your question.

Thank you. Maybe just a minute on contractor. Can you talk about what kind of sell-in, sell-through trends you're seeing in both the Home Center and ProPaint channel? And then can you also talk about how we should be thinking about the new product load-in this year, maybe relative to last? And then I have a follow-up.

Yeah, in terms of sell-in, sell-through, there's not a big difference. I think most of the channel partners that we do business with have been pretty careful with their inventory, and I think that they're continuing to be careful with their inventory. So I would characterize our sales and our bookings to be really pretty similar to what they're experiencing on an out-the-door basis, which, you know, I think makes sense given the environment that they're that they're playing in. We do have, you know, as every year, products that we're launching and we're planning to launch products here in Q2. I would not be baking in any large incremental increase compared to last year. I think it's a fairly stable, fairly similar new product launch year for the contractor business, what we've experienced in the past. We've got a couple things that we're excited about for sure that you know, we can talk about after they're actually launched, but again, I think it'll be kind of a similar year to what we saw at 25. David, if you've got anything.

Yeah, just a coincidence, I had a conversation with commercial management earlier this morning, and just to underline two of Mark's points, on the home center side, the positive side of the story is The foot traffic has not deteriorated year over year, although it still remains off the record levels that we saw in 20 and 21 and such, so there's an opportunity for recovery there. Those channel partners do, I would say, a very good job managing their working capital, and we feel pretty good about that the inventory level there is satisfactory. On the paint store side, always of interest to us, I think the key point there is we feel on the, you know, I say at the ground level of the business, our commercial team indicates that the sell-through has been satisfactory, and so that in that really important space for us, call it the retail demand is also pretty close to the wholesale, which is important, especially as we get some of these new products launched to that channel. And so I think that where we are at vis-a-vis our partners is they're ready to go and ready to order when they see retail demand, out-the-door demand increase.

Got it. Thank you for that. And then as a follow-up, maybe can you guys comment on how you're thinking about the M&A outlook, funnel actionability, the funnel depth, if you will, and where you may be seeing most activity? Thank you.

Yeah, I'd characterize the market as still pretty favorable. I think that there's properties out there that we're interested in. Our pipelines are well populated. We're having discussions with a lot of different companies. I do think there's been over the last year or so, a renewed appetite on the part of sellers to take a look at opportunities to realize value, and they're looking at strategic buyers in a lot of cases, and we're going to remain active. We like businesses where we can add value. I see a fair amount of opportunities within the industrial segment in particular. Contractor also has a couple things, but there's probably more lively stuff in the industrial side right now. Interestingly, I did go back and I looked at some information back from 2012 until the end of last year, and 2012 was the year that we acquired Gama. About 30% of Graco's revenue that we finished the year with in 2025 is acquired businesses. So we have had a pretty good track record of acquiring businesses, integrating them, maintaining and improving our profitability over that time horizon. And that's really what we're trying to do with our M&A growth going forward. We have a target long-term, 10% top-line growth, one-third coming from M&A. And if you look back historically, we've been able to do that. So we're proud. Teams are doing a good job. And hopefully we get some more opportunities here as we finish out the year.

Thanks, Mark. Yep. Our next question comes from Brad Hewitt of Wolf Research. Please state your question.

Hey, good morning, guys. Thanks for taking my questions. Yep, good morning. So, at the gross margin line, it looks like incrementals were about 25% in the quarter. Should we think about that year-over-year margin pressure as largely driven by a pinch on price cost, or are there any other factors you would highlight there?

I think it's mostly mixed and a little bit on the volume side, but Chris, you can probably give more color on that.

It was mixed volume and acquired businesses that really impacted for the quarter. Price cost was not a headwind outside of having lower factory volume to absorb the overhead.

Okay, great. And then maybe switching over to the backlog side of things. Just curious if you could elaborate a little bit more on visibility of kind of expected backlog conversion as it relates to the rest of the year. And do you see any risk of project cancellations or maybe slippage of backlog conversion into next year? Thank you.

Yeah, I don't think we see any risk at this point. It's always there, but it could happen. But nothing that we're concerned about on stuff that we've already booked and they're in our backlog. And, you know, I think that we said in Chris's comments that we expect most of that will convert in the second half of the year. It's hard sometimes to know the exact timing, but this is not something that we're going to keep on the books for more than that period of time.

Yeah, Mark's right. The risk of cancellation, be it in our legacy business or in even our GEMA business, with their direct system sales activity, in my experience, is quite low. In the legacy business, typically our stuff is among, I'm thinking of an industrial implication for sealant equipment or for something in the paint shop. Our stuff is some of the last that is actually ordered in a project. And so, for example, the expansion of a paint line. I mean, we're literally being dropped in a month or two before it's going to be commissioned and come on stream. So, Things that we have in our pipeline in that business is quite tangible and rarely is it canceled altogether. On the GEMA powder equipment side, I'd say that organization is even one step more sophisticated in direct sale activity for systems. is to accept an order requires a down payment, a very meaningful down payment, approaching half the project cost. And so the buyers are very committed if an order receives, gets developed to that point and shows up in our backlog. In my experience, I was involved with the team at GEMA for a few years, I think in the eight or nine years I was involved, over all that time, one project was canceled.

Great. Thank you so much.

Our next question comes from the line of Joe Ritchie of Goldman Sachs. Please state your question.

Thank you. Good morning, guys. And, David, thank you for all the help throughout the years. I wish you the best in retirement. Sanjeev, welcome. Thank you. So yeah, so maybe my first question, I just want to make sure that I fully understand the backlog conversion on the powder finishing systems. So was this simply that just the orders that you were expecting to come through in the first quarter came through later than you expected them to come through? Or was there anything else related to either supply chain or manufacturing that also impacted the conversion?

Yeah, I don't think there was any crazy stuff. We did get a couple nice orders right at the end of the quarter, but we were also converting a lot of the backlog that we had built in the month of February out at that same time. So they kind of offset one another. But no, we're not constrained in our operations. We're not constrained with the supply chain. It's really just kind of the cadence of these orders coming in and You know, we will get them out the door. We just didn't get them out the door by the end of March.

Okay. All right. Helpful. And I know you touched on the margin headwind, I think, in the first quarter being largely driven by lower volumes. I'm just curious, like, with the acquisitions also coming through the industrial segment, how much of an impact did the acquisitions have to the margin degradation in 1Q?

On a total company basis, it's about 50 basis points related to the acquired revenue on a total company basis. So the stuff going through industrial was by far the majority.

Okay. All right, cool. And then one last one. So last quarter, I think we talked a little bit about these like upfront licensing revenues that you were seeing from some of your OEM customers. I didn't hear it get called out today. Just any progress on that specifically would be helpful.

Yeah, we got a couple of other ones that we're working on, but we didn't really book anything here in Q1, so that's why we were silent on it. We still like the prospects for potential to get future license agreements. We love the technology. We've got it running through Graco products every time we meet with a customer or an OEM They're excited about the compact size of these motors the fact that they take left material that they are high torque So, you know, we're we're hopeful that we're able to do more in that area, but nothing in q1 Yeah, I know we've talked about this before Joe It's it's sort of strategic.

It's a master class in strategic selling frequently. We are cultivating very large companies with large decision-making bodies and organizations and keeping their processes moving. One large organization can be relatively responsive, quick, and enthusiastic. Another organization can be equally enthusiastic, but the decision-making process moves at a different pace. I think the nature of this is, while we're excited, and Mark's right about the technology, the the visible results that you're going to see over time are not going to have the same degree of predictability as our standard products business.

Makes sense, David. Thank you.

Our next question comes from Andrew Biscaglia of BNP Paribas. Please state your question.

Hey, good morning, everyone. Morning. So, yeah, so it seems Q1 sort of starting out a little deja vu with two years ago, same scenario, all end markets are down. And that year, you kind of struggled to overcome things. So my question is, you know, we're kind of two years later, we're kind of in the same setup. And the question does arise amongst investors, like, is there something, you know, this seems to be cyclical, but is there something more structural and maybe more This is great going into, you know, think about, you know, I don't know if it's a change of tack in terms of how you get volume, whether it's to touch your pricing or what. But I think at this point, you know, we're three years in and, you know, it just seems like the top line can't grow. So are there other discussions you guys have around anything, around if there is anything under the hood structurally that's changed in the last three years?

I will just say that we have grown the top line, and I will say that, of course, every day we come in here, we're doing everything we can to grow the business. When you're reporting every 13 weeks, sometimes the quarters can look better than maybe the overall business might look, and sometimes they don't look as good. We have been fighting some pretty substantial headwinds with respect to half of the revenue of the company that's tied to contractor and construction, and if you look at the Macro data on anything any metric that you look at over the last four to five years That has been a really tough market to be in and I'm proud that our teams have actually been able to drive the results that we have driven Given the environment that we're in we get up every day. We're working hard. We're pushing our teams. We're launching products Our teams are incentivized around growth. So there's absolutely no reason why they shouldn't be and driving for better results. There's nothing structurally wrong with the company. It's still extremely profitable. It still generates a tremendous amount of cash. And we have been also very active on redeploying that cash, both in the form of share buybacks as well as M&A. So, no, there's nothing here that I think we need to do that's different. I think that we're doing everything that we can, as we always have done.

Well, you know, on that note, you know, I think there's a little bit of, there's just some enthusiasm with the recent reorganization that there's something outside of what the market's giving you that you can, you know, find some incremental growth. And I guess, where are we seeing that or to date, like, where's that evident in your numbers? And will we see more, you know, more pronounced impact going forward

from that that change you guys made a year ago well again we did guide to low single digit growth organic constant currency for the full year for the quarter our industrial business was up mid single digit growth which was nice to see our expansion markets group was up high single digits growth and those were offset by the fact that our contractor business was down one percent so again going back to the Earlier comments, we're happy with what we're seeing. We'd like that to be better, obviously. We're pushing the teams hard. We still feel confident that we're going to get to the guide that we talked about a couple months ago.

Thank you.

Thank you. As a reminder, to ask a question at this time, please press star 1-1 or your touch-tone telephone. Our next question comes from Walter Liptak of Seaport Research. Please state your question.

Thanks. Good morning, guys. I wanted to ask, just get a better understanding of kind of the monthly trends. You talked about January being weak. I wonder if you could attribute that to anything. And then, you know, February, we have the war kind of heating up. But it doesn't seem like from what you said about orders that that has been impacting the trend for orders too much. So I guess I'm asking, like, you know, what are you hearing from customers both in North America and, you know, other parts of the world? And, you know, as we got, you know, more of this behind us, are you getting more confidence that, you know, that the customers can just kind of work through, you know, these macro uncertainties?

Well, in our businesses, there's different kinds of decision makers. On the contractor side of the business, maybe the decision making typically can be quicker or a little more reactive because generally the buyers represent other smaller organizations or entrepreneurs and such. There, I would say, despite all the challenges of the world in our contractor business, which, again, Mark is reminding us that it's 50% of our overall construction, broadly defined, the largest market there is here in North America, and specifically the U.S., Really, we haven't seen a change in the momentum of that business for a while, and certainly not in the last couple of months, despite all the global noise, because the fundamental issues remain the ones that you're familiar with about affordability and even mortgage rates. I would say that as focusing on the micro, not the macro, I was really excited when, for a few days, the 30-year mortgage rate got below 6% in late February. And now, of course, it's, I want to say, about 630 or 635 currently. I think it gets more, you know, the world and decision-making – when you look at industrial companies and how they make their decisions. And while I've got a list here that I'll spare everybody in the interest of time, for example, we would say, oh, the auto industry market was slow for us. The auto OEM market was slow for us. We had some tough comps, and we didn't see too much activity in the first quarter. But actually, we feel pretty good about our pipeline in the automotive industry. even in some markets like China, where think of combustion conversion to EV and requiring additional investments in the body and the paint shop. We're seeing greater inquiries and expanded pipeline from before the end of the quarter, even through the current period. And it suggests to me that big picture, big manufacturers They know the world's a noisy place, but if they're committed to moving in certain directions, they're going to make those investments. So it's a long-winded way of saying, I don't see a lot of demand implications on the new things that we have been absorbing here in the first four months of the year.

Okay, great. Thanks for that. And then I guess thinking about the second quarter and maybe the delays or the timing on shipments, especially for some of those powder orders, do we get like a normal seasonal bump up in the second quarter plus some of the orders that should have shipped in the first? Is that how we should think about it?

Yeah, I think for the contractor business, our history has always been that Q2 is the top quarter, so I don't see any changes to that cadence. I think on the orders that we just got in and, you know, recently, I mean, those are probably going to go up more in the back half with respect to the powder business. But for the legacy industrial business, we should be able to move those a little bit quicker.

Okay, great. And then maybe a last one for me is on buybacks. You guys weren't too aggressive in the first quarter. How are you thinking about buybacks versus M&A deals? You know, can you do both?

Hey, this is Sanjeev Gupta. So maybe I'll take a shot at it. So again, I think very consistent with how we've always done it, we'll be very disciplined with our capital allocation framework. And obviously, the goal here is to drive shareholder return while having our financial flexibility. So a strong balance sheet, we'll continue to preserve that. And then whatever operating cash flow we generate, which we have been generating very positively We'll be using that cash to fund our growth. We've talked about internal growth that will be invested in projects which meet our return thresholds. And second priority would be the growth, which is external growth through disciplined M&A. Mark talked about it. And that really needs to create the shareholder value and meet the return and integration threshold for us. And you've seen that recently with our current acquisitions, Corob, Color Service, and Radia. And then in terms of shareholder return, obviously we'll continue with the dividends, and any excess cash will be returned to the shareholders, and we'll be doing it very opportunistically, as we've always done. So in summary, very consistent with our capital allocation framework, which we have deployed in the market, that will continue.

Okay, great. Thank you.

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

Okay, thank you very much for participating today. I look forward to seeing you sometime down the road here, and thanks again for your interest in Graco.

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