Graco Inc Q4 FY2022 Earnings Call

Good morning, and welcome to the Fourth Quarter Conference Call for Graco, Inc. If you would like to access the replay of this call, please visit the company's website at www.graco.com. Graco has further information available in a PowerPoint presentation that can be found as part of the webcast player. During this call, management may discuss their expectations, plans, and future prospects. These discussions include forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act. Actual results may vary significantly due to various risk factors, including those mentioned in Item 1A of the company’s 2021 annual report on Form 10-K and in Item 1A of the most recent quarterly report on Form 10-Q. You can find these reports on the company’s website at www.graco.com and on the SEC’s website at www.sec.gov. Forward-looking statements represent management's current perspectives and are only accurate as of the time they are made. The company is not obligated to update these statements based on new information or future events. I will now hand the conference over to Kathy Schoenrock, Executive Vice President, Corporate Controller and Information Systems.

Good morning, everyone, and thank you for joining our call. I'm here today with Mark Sheahan and David Lowe. I will provide a brief summary of our results and then turn the call over to Mark for additional discussion. Yesterday, we reported record fourth quarter sales of $555 million, an increase of 3% from last year. As a reminder, the fourth quarter of last year included 14 weeks, as compared to 13 weeks in 2022. Net earnings in the quarter were $126 million or $0.74 per diluted share, an increase of 7%. Currency translation rates continue to be a challenge in the fourth quarter, decreasing sales by $23 million and net earnings by $12 million or $0.07 per diluted share. The gross margin rate decreased by 2 percentage points in the quarter, due to the unfavorable effect of foreign exchange. During the quarter, our pricing actions more than offset increased costs and had a favorable effect on both the gross margin rate and dollars. At current costs, we expect a favorable price-cost dynamic to continue as we move into 2023. Operating expenses decreased by $10 million or 7%. Reductions from lower sales and earnings-based expenses and translation rates were partially offset by volume and rate-related increases. Other expenses decreased by $15 million in the quarter as last year included a $12 million pension settlement charge that did not repeat. The adjusted tax rate for the quarter was 19%, due to the unfavorable effects of foreign earnings taxed at higher rates than the U.S. rate. We anticipate the effective tax rate for 2023 will be between 19% and 20%. Cash provided by operating activities was $377 million for the year, a decrease of $80 million from last year. Contributing factors include increased annual incentive payments and investments in working capital. I'll take a moment now to cover a few items as we look forward to 2023. As we discussed in our materials issued last night, we are initiating a revenue outlook for the full-year 2023 of low single-digit growth on an organic constant currency basis. Slide eight of our conference call slides, however, incorrectly stated growth expected in all segments and regions. A corrected presentation will be uploaded to our website following today's call. We have been and will continue to monitor changes in currency translation rates. More recently, we have seen improvements in our core rates and at the moment anticipate the full-year effect of currency translation would increase sales and earnings by 1 percentage point in 2023. Unallocated corporate expenses are projected to increase and fall within the range of $31 million to $34 million. This increase is related to stock-based compensation. We expect capital expenditures to be approximately $200 million with $130 million for facility expansion projects at our Minnesota, South Dakota, Switzerland and Romania locations. I'll turn the call over to Mark now for further discussion.

Thank you, Kathy, and good morning, everyone. All of my comments this morning will be on an organic constant currency basis. Sales in the fourth quarter were up mid-single-digits, resulting in quarterly and annual records for both revenue and operating earnings. We achieved these records in each quarter of 2022. Contractor was the only segment that did not realize a record in the fourth quarter. However, the segment did reach record annual revenue and ended just shy of $1 billion in total sales. Our consolidated backlog was $355 million at the end of the quarter, which is approximately where it was last year at this time. Slowing demand in Contractor, along with strong project completion in our powder equipment business, reduced backlogs from what we reported at the end of the third quarter. We also experienced areas of improvement in component availability during the quarter. While some shortages of key items like electronics and castings persist, supply chains have improved from earlier in the year. The pace of incoming orders has slowed compared to a year ago. However, year-over-year comparisons are heavily influenced by the magnitude and timing of our price increases in 2022 versus the fourth quarter of 2021. Many of you will remember that in 2021, we held pricing flat throughout the year after a modest increase in January. In the fourth quarter of 2021, we announced that we would be implementing a substantial price increase early in 2022, which led to heightened order activity in last year’s fourth quarter. We have factored these things into our outlook, which I will cover later. Now turning to some commentary on our segments. The Contractor segment had a mid-single-digit revenue decline in the fourth quarter, driven by less demand in the home center channel, limited pro paint product availability in EMEA and Asia Pacific and the effect of lost sales due to discontinuing our Russia operations earlier this year. The North American pro paint business remained strong, with revenue growth in the high-single-digits for the quarter and out-the-door sales were equally strong. Component availability improved, but we are still on back order, especially in our pro paint business. We continue to monitor global construction indicators. However, given the broad nature of our short-cycle business, which has multiple product categories, it is difficult for us to accurately predict the ultimate trajectory of revenue. Simply put, there is no silver bullet in terms of expert consensus or leading indicators that guide us to a certain revenue outcome. Our products are used in many things such as new construction projects for single-family residential, multifamily residential, and commercial construction. Contractors also have repainting and remodeling projects covering these categories. In addition, we support specialty contractors doing things like spray foam insulation, line striping, pavement maintenance, texture spray applications, and high-pressure protective coatings jobs that are often seen in infrastructure applications like bridges, pipelines, and commercial shipping. Most contractors working in the aforementioned categories report project pipelines that go through much of 2023 and even into 2024 for commercial applications. Experience has shown us that as long as contractors have solid project pipelines, they will continue to buy both spare parts and new equipment. These factors, combined with new products being launched and our channel expansion initiatives, put Graco in a better position than if we only had to rely on the economy to determine our revenue fate. In the Industrial segment, sales were up 17% in the quarter with positive results in all reportable regions, and they achieved fourth quarter and annual records for both sales and operating earnings. This segment is the most global of our businesses and experienced solid growth in all regions for the quarter and for the year. Key product categories such as finishing systems and sealant and adhesive equipment were the main drivers of this growth. Profitability continues to be strong with incremental margins of 55% in the quarter and 61% for the year. Checking with our teams, project activity remained good as we finished the year. The Process segment grew sales 16% for the quarter, resulting again in both quarterly and annual records for both revenue and operating earnings. This is the fifth consecutive quarter that process has set these records. Increased volume drove profitability improvements as the year went on. Incremental margins were 48% in the fourth quarter and 36% for the full-year. Broad-based sales growth in lubrication equipment, process pumps, and semiconductor pumps, heaters, and fittings drove the strong performance. As we finish 2022, we have large backlogs in semiconductor, decent project activity in lubrication and process pumps, and we are excited about both recent and upcoming product launches in these businesses. Moving on to our outlook. As we enter 2023, we're keeping a close eye on order trends and business tempo. At this time, we remain cautiously optimistic that we can drive another year of growth in both sales and net earnings. As such, we've initiated a low-single-digit organic revenue growth outlook on a constant currency basis for the year. Our teams performed extremely well over the last two years, and we are ready to react if conditions differ from our expectations. I am confident that our performance will reflect this in 2023. Our core strategies of launching new products, investing in our manufacturing capabilities, expanding our global channel, and pursuing strategic acquisitions will facilitate growth not only this year but also in the future. That concludes our prepared remarks. Operator, we're ready for questions.

Thank you. The question-and-answer session will now begin. Your first question comes from Deane Dray at RBC Capital Markets.

Thank you. Good morning, everyone.

Good morning, Deane.

Can we start with the concern about one of your pro paint customers missing earnings and lowering guidance, which has led many to assume there's an immediate negative impact on Graco? The truth is you're not as reliant on that customer as people think, and there are other applications to consider. Please clarify this misunderstanding and discuss the relationship and market exposure.

Yes. So I would say that overall, we haven't really seen any decline in our pro paint business, and I think that's reflective of the fact that contractors are busy; they've still got projects, and they buy stuff when they feel good about the outlook on different things. But notwithstanding that, we do sell into some of the newer construction markets that have, I think, been particularly hit by the increase in interest rates and housing activity overall. I tried to point out in the opening remarks that this is a pretty broad business when you're looking at our Contractor business. There's a lot of different applications, a lot of different product categories. And we aren't, as you said, tied into one specific macro thing that you can really use to guide what we see on the revenue growth side. So when we look at everything and what we're experiencing right now, we feel okay about CED. And as the year progresses, our visibility will be much better because we are pretty short cycle, as you know. And orders come in, we get them out as quickly as we possibly can. It's good for our customers, but it does create some issues for us in terms of just having clear visibility on where things are going. I was at a trade show last week by a large paint organization, it's their annual trade show. And it was very well attended. Our booth was extremely busy. They bring in their store managers from around the country. There was a lot of interest in our new products that we're launching. And I would say overall that it is a fairly positive takeaway for me being able to walk the floor and talk with different participants in that industry. So again, we'll see how it plays out, but things are hanging in there pretty good for now.

That's all good to hear. On the pricing outlook for 2023, you're planning to go back to one price increase. What is the expectation for the price increase in January? What kind of realization are you anticipating? And what does that imply for price-cost?

Yes. It really depends on the business unit in the region. But generally speaking, this will be more of a normal price increase, I would say, in line with what you might have seen in 2018, 2019. And each segment is implementing that here in the first quarter. And some of the regions are going to wait until a bit later on because we did just push through a fairly healthy price increase at the end of the third quarter. In Contractor, I think given that they have raised their prices already twice, we're going to hang tight for a while. I think we're in better shape than we were. You actually saw price-cost neutral to slightly favorable in Q4. We're hopeful that the actions that we've taken will continue to play out that way for the rest of the year.

Great. Thank you.

Yes.

Thank you. One moment for your next question. Our next question comes from the line of Michael Halloran from Baird.

Good morning, everyone. Mark, could you discuss where you anticipate growth this year by segment and identify any areas where you may face challenges? Additionally, I'll have another question related to that after you respond.

We haven't provided specific guidance on the outlook by segment or region for several reasons, primarily due to limited visibility. However, we are optimistic about the product launches and channel expansion efforts in the Process segment, which still has a significant backlog from orders, especially in the semiconductor sector. This should positively impact annual revenue for that segment. Overall, we believe the Process segment is in good condition. In the industrial segment, much of the growth we experienced at the end of last year and throughout 2022 stemmed from our sealant and adhesive businesses, as well as our powder equipment division. Fortunately, the powder equipment business has backlogs and better order visibility, which offers a clearer roadmap for the year compared to some of our short-cycle businesses. Combining these factors, we feel confident about our growth prospects in the industrial sector in 2023, even without going into details about specific regions. Regarding the contractor segment, it remains somewhat unpredictable. Currently, order levels are satisfactory, with the professional side performing better than the home center side. The professional segment is also more profitable, so having a strong performance there will support our overall profitability. Overall, we are comfortable with our guidance for low single-digit growth.

That makes sense. And then maybe talk a little bit about the cadence in that as you look through the year, some of the comments in the prepared remarks about a little bit of pre-buy ahead of some of the price increases in the fourth quarter, given kind of the time frame that tends to imply maybe a little more outflow in the front part of the year, visibility better front half versus back half? Is some of that reflected in guidance? Or is there an element of just relatively normal seasonality embedded in that outlook?

Yes. I think we tried to do the best job that we could to factor all that in to give you the full-year guide. There's probably going to be a little bit of volatility in terms of order rates and those types of things. We certainly saw that in Q4, just from a comparison standpoint from a year ago. But we also raised prices in Q3 of this past year. So you might see a little bit more order volatility around that as well. All in all, though, I think that the guide that we gave, this kind of low single-digit number for the full-year, we feel pretty good about it. David, do you have anything to add there?

When we discuss the Industrial and Process space, it's important to note that the channels tend to have low stock levels, and their demand fluctuates significantly. Quite frankly, many of these channels may struggle with understanding what to order for future price adjustments. As Mark mentioned, the CED represents the shortest cycle among all our short-cycle businesses. I believe we might be witnessing a return to normalcy, characterized by improved supply chains, although there are still some gaps in electronics and chips. Overall, I feel optimistic that we are moving towards a point where our channel partners can place orders with confidence, knowing that we will deliver promptly.

Got it. So it sounds like what you're saying is the seasonal patterns are reasonably normal, but there's going to be some volatility expected through the year. So there's going to be some variance in that thought process as we move forward.

Yes, it could be some order volatility. Hopefully, the factories are in a better spot where what we actually get out the door is a little bit smoother than the order rate volatility. Of course, we still got big backlogs, right? So I mean, a year ago, when we were talking with you guys, we were lamenting the fact that we had $350-plus million of backlog, and that's where we're at here today too.

Thanks, Mark. Thanks, David. Appreciate it.

Yes.

Thank you.

Thank you. One moment for your next question. Your next question comes from the line of Saree Boroditsky from Jefferies.

Hi, good morning. So gross margins were up a little bit sequentially, but still remain under pressure. What do you need to see to get gross margins back above that 50% level?

Hi Saree, this is Kathy. In the quarter, we experienced a negative impact from foreign currency exchange. However, given the current rates, we do not anticipate this challenge continuing into 2023. Rates may fluctuate, but since we saw a positive price/cost dynamic in the fourth quarter, we are hopeful about entering 2023 and seeing some improvement in our gross margin rate. Of course, we need volumes to stay consistent and costs to remain stable. These are the two key factors we will be monitoring in the first quarter and throughout 2023.

I want to emphasize that after several quarters of significant price-cost pressure, starting from early Q2, we made notable progress in Q4. This progress reflects the pricing actions we took at the beginning of the year and the interim price increases implemented during the summer. We learned valuable lessons from this experience.

Yes. In Q4, if currency effects were neutral, we would have exceeded 50%. So let's hope it remains neutral, that our price-cost situation improves, and that actual input costs decrease at some point. We may start to see some of that happening. Nothing is broken here, so we should return to the rates you mentioned.

Great. And then obviously, you've seen positive on the outlook for industrial next year. Can you just talk about what drove the strength in the quarter? And how do you think about those markets going into the year?

Yes. I mean, I would just say that all in all, it was a great year for that team. I would point to the things I said before. I think our adhesive dispensing business, our sealant business is on solid footing across multiple industries, including general industry, aviation, and solar. They have automation projects going on both in that business, as well as on the paint circulation side. They've got really good channel initiatives for expanding their channel. We've got engineering teams now located in the regions that are doing special projects for customers that lead to a more robust product plan. So overall, I think we feel like things are in good shape there. And then you throw in like e-mobility, battery production. We're trying to build our business in the packaging space, and a really good powder equipment business, which has performed extremely well over the last couple of years, and they've got nice backlogs heading into 2023. All of that really makes us feel pretty positive about what's going on in our industrial segment.

Great. Thanks for taking my questions.

Yes.

Thank you. One moment for your next question. Your next question comes from the line of Matt Summerville from D.A. Davidson.

Good morning. This is Will Jellison standing in for Matt Summerville today. I wanted to ask you about your plans for facility expansion and organic investments in the business. I'm interested in your thoughts on potential inorganic investments as well. Do you currently have any actionable opportunities in the pipeline? Additionally, what types of businesses would you consider adding to the Graco portfolio during this process?

Yes, it's a good question. Thanks for asking it. I mean, for sure, we're trying to put every penny back into this business that we possibly can. In good times and bad, we're going to keep investing in product development, upgrading our facilities, making capital investments that have good returns on investment associated with them. And everybody that follows the company knows that notwithstanding that, we still generate enough cash to be able to look at things like acquisitions. I would say that the teams over the last year have done a pretty good job of working with the corporate team in developing pipelines and looking at various applications, both with their existing markets, as well as adjacencies where we think we can drive some value. And for us, the value is really on the production side. We've got great manufacturing on the engineering side. I think we bring some skills there. And then, of course, channel sales, marketing, and the infrastructure that we have around the world. So I feel really good about where we're at in the journey here. We kind of stepped things up last year. All the business units now have decent pipelines, there's activities going on. We'll see what happens. The market has been a bit frothy, as everyone knows, over the last 18 months or so. But with rates coming up and multiples coming down, I think that could create some opportunities for Graco to help add some growth through good strategic acquisitions.

Yes. I would like to add to Mark's point that the corporate group has dedicated significant time to engaging with the operating teams and has identified appealing segments. From this effort, we have developed a prospect list with the intention of reaching out to build relationships and understand their businesses prior to any potential events. We have experienced situations where we had to react, which is not ideal. Regarding specific applications, I can say that we are interested in markets with desirable characteristics, particularly niche markets and business-to-business markets. We appreciate markets with large installed bases, as these positions can benefit long-term participants. Additionally, recurring revenue is important to us, and we value markets that are willing to pay suppliers for quality and innovation, as this aligns with our value proposition.

That’s great. Thank you for taking my question.

Thanks.

Thank you. One moment for your next question. Your next question comes from the line of Joe Ritchie from Goldman Sachs.

Thank you. Good morning, everyone.

Good morning.

I just want to ensure I understand the low single-digit guidance for 2023. The expectation seems to be that pricing will be low single digits, while volumes might be flat or declining. Did I get that right?

We didn't specifically separate price from volume in our outlook, but when you combine everything, it results in the low-single-digit guidance. We have incorporated a significant amount of price realization in the outlook, since we increased prices a couple of times last year. As we compare 2023 to 2022, there should be some benefits from that. However, we have not detailed the volume in the overall outlook.

Okay. And then maybe just on the pricing comment, as you're exiting 2022, how much of that pricing carries forward into 2023?

Last year, we started from a baseline where we implemented a significant price increase in January, followed by another one in September. For the first nine months, the impact of both price increases will be noticeable. By September, we expect to be on track with where we were at that same time last year.

Yes. When you age our backlog, the vast majority of our backlog reflects 2022 pricing either in January or the interim adjustment we made at the middle of the year.

Got it. Yes, that makes sense. I wanted to focus on the Contractor segment for a moment. This segment has experienced impressive growth over the past few years, and it’s surprising that it accounts for nearly 50% of your revenue as of the end of last year. You mentioned that the professional market remains quite strong with a positive demand outlook, and there appears to be a difference between the professional segment and the home center. From your experience, is it common for these types of business cycles to show divergent trends between the professional side and the home center side? Or do you anticipate that these trends might start to align if the demand outlook begins to weaken?

Yes. I don't really know. I mean, what I would tell you is that at least with regard to the home center over the last couple of years, it's been kind of crazy, right, with all the stimulus money and people working from home and hanging out at Home Depot doing projects, that kind of thing. So it probably doesn't really line up with what we may have seen historically. Money was free for a long time. Now money is not free anymore. So I do believe that the consumer is going to retrench a little bit, and that likely would show up on that side of the business. On the pro side, again, our experience has always been that if they've got jobs and they've got a pipeline and they're busy and they can see projects going out, they buy new equipment. Typically, if you're a painter and you buy a new sprayer and you're busy, you can pay for that thing like within one or two jobs. So it's a really quick payback, plus you get all the benefits of having a new tool and a new piece of equipment. So it's sort of a confidence thing for them. And with all the different projects and things that they get involved with, at least for now, it appears to be on fairly good footing.

Got it. If I could sneak one last one in on the Contractor. How do you think about normalized margins for that business? Because I remember a time when like the margins were in the low-20s, and there was an opportunity for them to really expand as you mixed up your products that were being sold, higher-priced sprayers. How do you guys think about normal margins for the Contractor segment over time?

Yes. So one thing I'd just point out is if you go back historically, we never had the protective coatings or the spray foam in their numbers. And those are in our Industrial business. So it's a little bit hard to go back and compare. What I will say is we don't really have a target for our teams when it comes to margin increases and what we're trying to get to. I think that if the volume is there, and we can get a little bit of relief on the price-cost equation, which we've really not seen much in contractor, that their margins can trend higher. So a couple of years ago, somebody would probably have said, well, gosh, your Industrial margins are so high. Where do you go from here? And if you look at what we did this year, I mean, we went from 33% operating margins last year to 36% this year, and we were at 37% in the fourth quarter. So we don't really put a lid on these things for our people. They get incentivized to grow the business both on the top line and the bottom line. And we find ways to do it.

Super helpful. Thank you.

Yes.

Thank you. One moment for your next question. Your next question comes from the line of Jeff Hammond from KeyBanc Capital Markets Inc.

Good morning. In the presentation, you mentioned a change, but I would appreciate some clarification on what exactly is changing. You proposed that you are shifting from growth across all markets and regions, is that correct?

Sure. We are taking out the with growth expected in all segments and the regions and just leaving it to the guidance of full-year growth in the low single-digit range on an organic constant currency basis.

So does that imply that there's a geography or segment that you'd expect to be down?

It's just a general comment. We can't really specify or control where the contributions will come from. We want to clarify that point. Unfortunately, the note at the bottom was carried over from a previously published slide and wasn't updated. I wouldn't read too much into it; it was simply a clerical mistake. However, we remain confident in our overall guidance of low-single-digit growth for now.

Okay, perfect. I think you've mentioned consistently about your focus on the semiconductor process. Can you remind us what that focus is this quarter? The market has been strong, but there have also been significant CapEx cuts and concerns around semiconductors. Are you noticing any signs of weakness? Additionally, looking towards the long term, how do you see the Chips Act and the potential for growth impacting this market?

Yes, we like the business. It's been really strong for us. It's grown, I think, 10 times since we bought it. So there's certainly not much negative to say about it. There is still business happening there. Again, we make these high-purity components and pumps that go into the equipment that's used to actually manufacture chips. And so if they're putting in a new fab somewhere, they're going to need this equipment to go inside the fab that's being built. So you've got the backlog that was created by all the business that's happened over the last couple of years. And then now as manufacturers are looking to move locations around the world, that creates opportunities for us to go in and sell them new high-purity equipment. We bought some other businesses, kind of, around it that do things like heating and then some of the baths that are used to actually house the chemicals before they get pumped and put in. So all in all, we like the space. We're in a nice niche, and we feel pretty good about it.

I would like to add that regarding capital investment spending, the significant fab investments that have been discussed, especially those from 2021 and 2022, will continue to unfold over the next few years. This area has potential for growth because it operates on a longer cycle compared to the Graco average.

Okay, thanks.

Thank you. One moment for your next question. Your next question comes from the line of Thomas Johnson from Morgan Stanley.

Hi, thanks. I just wanted to revert back to the contractor segment here. I know in your comments, you had noted limited pro paint product availability as a headwind in the EMEA business? So it would just be helpful, if you could get some incremental color on exactly how that headwind has impacted the business and maybe what you've seen in terms of improvement or easing availability there?

Yes. So I think the comment was about EMEA, as you said. And in the quarter, we were actually down, but if you were to back out the Russia business that we had a year ago and currency, it was actually sort of a flat environment for us in Contractor EMEA. But as you noted and we mentioned, part of that, we also believed it would have been a better quarter for us and a better year if we were able to get some of the more higher-end pro units over to Europe in a more timely manner. As you probably know, we've been battling electronic components and different aspects of the things that go into our higher-end sprayers throughout the year. And our team over in EMEA believes that if we had better flow of those products, they would have posted better numbers.

Great. That's very helpful. In terms of the improvements in availability, is it fair to assume that the challenges compared to last year will be less of an issue in 2023 for that business and region?

Yes. I think we saw a pretty good improvement as we got through the back half of last year. We're still faced with some component shortages in things like electronics, but I would characterize that overall as we're in a better spot today than we would have been in the past.

Great. Thank you. That’s all for me.

Thanks.

Thank you. One moment for our next question. Your next question comes from the line of Walter Liptak from Seaport Research.

Hey, good morning, guys.

Good morning.

Thank you for providing clarity on EMEA and the Contractor segment of the business. Could you discuss more generally about EMEA and any recent improvements in macro data? What has been your experience with industrial and process there?

I would say that regarding EMEA, particularly on the macro data front, the economic outlook for Germany, which is the largest industrial market in Europe, appears to be somewhat positive. Our teams in Europe have noted that this winter has been milder than expected compared to previous years, which is beneficial. The stabilization of energy prices contributes to this situation, along with the efforts in Europe around energy conservation, the introduction of new natural gas sources, and even the continued use of nuclear and coal energy, all of which likely support our sector. Natural gas prices have decreased by about 50% from their peak, while electricity prices have dropped approximately 30%. Although these prices remain relatively high, the decrease is significant. Additionally, the automotive market in Europe, which has faced challenges similar to those in the U.S., is seeing an improvement in retail auto sales.

Okay. Great. And similarly, China looks like it's beginning to open up. ISMs were a little bit better. Can you talk to us about just your exposure there? And is it mostly supply chain? Or do you benefit from an improving economy?

Yes, we expect to benefit in China from an improving economy now that they are starting to open up. Although they are still experiencing a COVID wave, our team reports that conditions are improving significantly every week. As they continue to open up, it should lead to increased activity for us. A substantial portion of our business is industrial, serving factories, and also includes alternative energy sectors like batteries, solar, and wind energy, which are all crucial for Graco, alongside automotive. While I always approach this with caution, I believe that once we navigate through COVID in China, there could be significant upside for the company.

Okay, great. Thank you.

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

Okay. Thank you, everyone. In closing, I'd like to thank our employees, our suppliers, our distributor partners around the world for their strong contributions and helping us post another record year at Graco. Yes, it's been a challenging year, but in true Graco fashion, we've been able to overcome the hurdles and deliver significant shareholder and customer value. While there are many things that contribute to our strong performance, it's really our loyal and hard-working employees that make this company great. That concludes today's call. Thanks for participating, and have a good day.

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