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 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 question and answers after opening remarks from the management. During this call, various remarks may be made by management about their expectations, plans of prospects for the future. These remarks constitute forward-looking statements for the purpose 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 2023 Annual Report on Form 10-K and in Item 1A of the company's most recently quarterly report on Form 10-Q. These reports are available on the company's website at www.graco.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 obligations to update these statements in the light of new information or future events. I will now turn the conference over to Chris Knutson, Executive Vice President, Corporate Controller.

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 overview of our quarterly results before turning the call over to Mark for additional commentary. Yesterday, Graco reported third quarter sales of $519 million, a decrease of 4% from the same quarter last year. Reported and adjusted net earnings decreased 8% to $122 million or $0.71 per diluted share. Excluding the impact of excess tax benefits from stock option exercises, the impairment charge and contingent consideration adjustment recorded in the third quarter of 2023, adjusted non-GAAP net earnings per share decreased 7%. The effect of currency translation had no significant impact on sales or net earnings for the quarter. The gross margin rate increased 50 basis points in the quarter. Realized pricing was more than enough to offset sales volume declines occurring in all segments. While product costs were lower for the first 9 months of the year, they were a headwind in the quarter as our production volumes primarily in Contractor have declined. We expect these headwinds to continue for the remainder of the year. Total operating expenses increased $9 million or 7% in the quarter, mainly due to new product development spending, growth initiatives, and other corporate items, including the relocation to a new distribution center. Reductions in volume and earnings-based expenses of $3 million partially offset this increase. Gross margin rate improvement was unable to offset lower sales volumes and increased expenses during the quarter, resulting in an operating margin rate of 28%, a decline of 2 percentage points from the same period last year. The process segment operating margin rate decreased 4 percentage points to 27% due to the impacts of higher spending and decreased volumes compared to the third quarter last year. Interest and other benefits increased $4 million during the quarter, driven primarily by lower interest expense as our long-term debt was repaid in 2023, in addition to increased interest income on cash held. The adjusted effective tax rate was 19%, which is consistent with our expected full year tax rate of approximately 19.5% to 20.5% on an adjusted basis. Cash provided by operations totaled $436 million for the year, a decrease of $55 million from last year, driven mostly by inventory purchases related to new product launches, timing of estimated tax payments and lower net earnings. Cash provided by operations as a percent of reported net earnings is 116% for the year. Significant year-to-date uses of cash included repurchases of 399,000 shares for $31 million, dividends of $129 million, and capital expenditures of $93 million, of which $60 million related to facility expansion projects. These cash uses were offset by share issuances of $45 million. A few comments as we look forward to the remainder of the year. Based on current exchange rates, assuming the same volumes, mix of products and mix of business by currency as in 2023, movement in foreign currencies would have no impact on net sales or net earnings for the full year. Our full year estimates for unallocated corporate expense and capital expenditures remain unchanged and can be found in the conference call slide deck on Page 10. Finally, effective January 1, 2025, we will move to a global customer-centric operating structure with 4 business divisions: Industrial, Powder, Expansion Markets, and Contractor. At that time, our regional teams, which previously operated independently, will be integrated into the business divisions. The current Industrial and Lubrication Equipment divisions, along with the Process Transfer Equipment business that is part of the Process division, will be combined to form the new global Industrial division. The Powder division, which is currently structured as a global business, will continue to operate as it does today and will combine with the Industrial division to form the Industrial reporting segment. The new Expansion Markets division will focus on driving inorganic growth in new or adjacent markets. Our existing environmental semiconductor, high-pressure valves, and electric motors businesses, together with select future ventures and acquisitions, will reside within this newly formed division and reporting segment. The Contractor division will be restructured to serve the needs of our global customers and will remain unchanged as a reporting segment relative to prior periods. We will report financial results under these new segments for the first quarter of 2025. We will provide recast segment financial information in connection with our fourth quarter earnings release as supplemental information.

Thank you, Chris. Good morning, everyone. I'd like to begin by discussing our recent announcements. In September, we announced our One Graco initiative focused on driving global growth, greater profitability, and operational efficiencies. Starting in 2025, Graco will adopt a new global structure with a commercial focus, enabling our sales, marketing, and engineering teams to focus squarely on revenue growth. This new customer-centric approach focuses on segments with similar needs, helping us scale more easily as we grow and enhance our customer experience. The strategy builds on the success of our powder coating business and aligns well with the integration of Protective Coatings and spray foam businesses into the Contractor division a few years ago. The new structure also strengthens our ability to pursue M&A opportunities through both our legacy divisions and the newly created Expansion Markets division, enabling us to target significant acquisitions in current and adjacent markets. As we establish our new market-oriented global structure over the coming months, I have full confidence in our experienced leadership team and dedicated employees to navigate this change successfully. During the quarter, we also announced the acquisitions of PCT Systems and Corob. PCT Systems, which provides megasonic and ultrasonic wet cleaning systems, complements our existing high-purity chemical delivery equipment used in semiconductor and electronics production. Although the PCT acquisition closed during the quarter, it did not have a material impact on quarterly results. We also reached a definitive agreement to acquire Corob, a global leader in high-tech dispensing and mixing solutions for paints and coatings. This acquisition enhances our strong position in the growing paint and coating machinery manufacturing category within the Contractor division while expanding our global manufacturing footprint. We expect the Corob acquisition to close in the fourth quarter, and the combined annual revenue of these acquisitions is nearly $130 million. We're very optimistic about these opportunities and confident in our ability to leverage the complementary strengths of these businesses to drive growth and create value for our customers and shareholders. Moving on to our financial performance. All of my comments will be on an organic constant currency basis. Sales in the third quarter were down 4% with declines in all segments, except Industrial, which was flat. Industrial finishing systems sales in the Americas and EMEA offset steep declines in Asia-Pacific, especially China. Declines continued in the Process segment, with weakness noted in the semiconductor and mining markets. New product introductions in the Contractor segment have been well received, and global protective coatings markets are strong. The decrease in China revenue across the Industrial and Process segments accounted for more than 90% of the overall revenue decline in the quarter and over 60% year-to-date. This represents broad-based weakness and overcapacity across key end markets, including automotive, batteries, solar, semiconductor, and electronics. Incoming order rates in the third quarter continue to be difficult worldwide as all major product categories with the exception of our powder finishing business saw order rates decline compared to the second quarter of this year. Weak demand continued in the Asia-Pacific region, especially in China. These reductions have been consistent throughout the year. Demand in North America also softened during the quarter, impacting all segments. In contrast, over the past 6 weeks, our consolidated global incoming order rates have shown improvement compared to the same period last year, experiencing 11% growth. This double-digit increase is primarily driven by both the Industrial and Process segments. While this is a relatively short time period, it gives us optimism for the remainder of the year. Now turning to some commentary on our segments. Contractor sales were down 1% in the third quarter. Protective Coatings grew across all regions, but it wasn't enough to offset softness in the pro paint and home center channels. Asia-Pacific was a bright spot, as the container market showed continued improvement after minimal activity last year. Response to new products continues to be favorably received, and inventory levels within the channel are considered normal. We have additional new products targeted to be launched prior to the end of the year, which should also have some positive impact for the fourth quarter. Industrial sales were flat in the quarter as strong finishing system sales in both North America and EMEA were offset by heavy declines in Asia-Pacific. Revenue in the Americas was higher for the second quarter in a row, led by the timing of finishing system sales, along with increased activity across the Liquid Finishing and Sealants and Adhesive businesses. The team remains positive as coating activity remains stable. However, CapEx investments are being delayed as end users are taking a wait-and-see approach. Moving on to the Process segment. Sales were down 12% compared to the same quarter last year, primarily due to continued weakness in the semiconductor and mining markets, along with a slowdown in vehicle service business. The decline in sales volume is primarily the primary driver of the decrease in profitability with decremental margins of nearly 60% for the quarter. Moving on to our outlook. Overall, conditions remain challenging as we continue to experience soft demand trends in many of our core markets. We're encouraged by the increased order activity so far in the fourth quarter, and we have confidence in our new product lineup. However, it's still too early to know if these order rates will continue to the end of the year. As a result, we're maintaining our full-year revenue guide of low single-digit decline on an organic constant currency basis.

Our first question is from Deane Dray with RBC Capital Markets. Please go ahead.

Maybe we could start with the usual tour by end market and by region. Obviously, more of a focus on APAC. That 90% data point where the shortfall was, that's kind of what's going on their ground level. I do notice there's no change in the traffic light chart. You're already at red lights in APAC for Industrial and Process. So maybe start with that tour end market and region and where the surprises were?

Yes, we're red. We couldn't make it any more red. It's been flashing that way for a while for us. I mean, China sales, we wanted to highlight those because we really do feel like that has been the main area where our business has experienced the softness this year. Again, the Q3 China sales were down about $10 million for Industrial and Process, and the total AP sales were down $11.2 million. So really, all the decline is coming in those two divisions within China. And kind of the same story on a year-to-date basis. If you look across the end markets there, for sure, automotive is down compared to last year. The construction area is actually up a little bit for us because of what we've got going on in the container industry. So CED actually grew, which was nice to see. But really, all the other big markets in China, whether it's mining, battery production, solar, or electronics, they're all experiencing headwinds this year compared to what we've had in the past. Positively, Japan seems to be doing pretty well. Korea is hanging in there, and we're also seeing growth in India. So it really is kind of a China story. I think we need to get through the end of the year here and then hopefully, we can grow off of a lower base there.

And how about the other regions?

Europe is hanging in there pretty well across really all of the different product categories. We had decent activity in Industrial, Process, and Contractor. So on an overall basis, while the revenues were down compared to a year ago, kind of that low single-digit decline really doesn't cause us a whole lot of concern. We did see nice activity in North America, really driven by some of the larger projects that we had on the finishing systems side of the business that freed up in the quarter that we were able to deliver and get customer recognition for us. So I would probably characterize North America as decent, Europe as okay, and Asia-Pacific market has been really challenging for us.

That's good. And U.S.?

On that, I would say, in talking with our teams here in North America, they've called out over recent months, good activity in defense. The solar market, interestingly, here in North America, which is soft in Asia. Despite the challenges in the industry, aerospace, electronics, and even automotive in both the legacy and the EV manufacturers are pretty good markets for us.

Mark, we discussed this at the RBC Industrials Conference a few weeks ago. Can you explain the reasoning behind the resegmentation? Why now, and how did you decide on these four categories? Is it too soon to discuss potential areas for growth and any possible improvements? Additionally, how will you measure the benefits from these changes?

Yes. So I think the genesis was really this spring when our team got together and looked at some of the data and we really figured out that we weren't growing as much organically as we thought that we could, and we felt like some of the structural barriers that we have put up as a team and the silos by creating divisions that have their own factories and their own marketing teams and their own engineering teams and approaching our channel partners individually versus trying to leverage a One Graco approach was really what we started with. We commissioned a group of leaders that were not direct reports of mine, but these were our high potential people within multiple business and regional units, to take a look at the structure and come back with some recommendations. And after a few iterations with my team as well as the Board of Directors, we really landed on the One Graco approach. I think it will result in some efficiencies just in terms of our ability to target customers with the entire product line versus on a division-by-division basis and will also reorient us a little bit more towards looking at the key customer constituencies in a number of business units. It's interesting because the end users, the customers in Process, Industrial, and LED in a lot of cases, are very similar. You go into a factory, and you're dealing with the guy that's actually running the machine, you're dealing with a factory manager, you're dealing with an engineer, you're dealing with procurement people. And being able to go in with a One Graco approach with the full product line, we think it's going to have a lot of value versus having multiple teams interact with those customers as well. So it's not going to flip a switch overnight. And as I think I told you, no structure is perfect, but we really do believe that after running the current playbook for more than 20 years, it was time to take a fresh approach, and we're all excited about the prospects that the One Graco will have.

Our next question comes from Mike Halloran with Baird. Your line is open. Please go ahead.

I have a couple of questions. Following up on the previous point, it seems that the restructuring you're implementing is more focused on driving growth. In the past, you've mentioned aiming for around 5.5% growth, possibly adding an additional 5% during the last cycle. Is the goal to achieve an extra point of growth in that context? Also, do you anticipate any margin benefits from these changes as you adjust operations globally?

Yes. For sure, growth is the driver behind us. Again, as I said, our team got together and we look at the numbers, and we felt like we could just do a better job. And so that was kind of the genesis of this change that we're going through. I guess the other piece that I didn't mention is that we also created a new group called Expansion Markets that will be not only managing some of the businesses that we've acquired over the last few years, but we'll also be looking for adjacent markets that are near those businesses and new opportunities that we might potentially explore as a company. I really felt like we didn't have anyone at Graco that was focused on that. And I think that there are other areas outside of our current businesses that we can pursue on the M&A front. And so we'll be doing some work there as well. I think it gives us maybe a better chance at being able to score points on the M&A front. Our divisions are still going to look at the things that they've always focused on, and our pipelines look pretty good there. But having that group look at those opportunities is going to be a change compared to what we've had in the past. In terms of efficiencies, yes, there will be some. I think for now, what we're doing is we're working through the details of what the new structures are going to look like. We're going to hit the ground running on January 1, and I think we'll be ready to talk about efficiencies and what we expect to see after we're done with the work, most likely when we make our year-end announcement and talk with you all at that point. We don't have specifics yet that I'm comfortable sharing with you, but we are looking to drive both top line and bottom line growth with some of these moves.

It makes sense. I have a couple of questions. First, we're nearing the end of the year, so your guidance implies some growth for the fourth quarter, but the range is quite broad. Are we expecting a fourth quarter growth rate that aligns with the low single-digit guidance for the full year? Additionally, can you provide some context regarding the backlog and orders, and help us understand how that is impacting everything at this point?

Yes. I believe our guidance remains consistent with what we've communicated over the past few quarters, targeting a low single-digit decline in constant currency revenue. You can calculate the implications of that for Q4, reflecting what we observed in Q3 and year-to-date. We've seen a significant reduction in backlog, decreasing from $450 million to $230 million. We are now operating at what I consider a normal business level for Graco, mostly focusing on book and ship, with a few exceptions like our Powder Coating business, which still has some backlog, along with longer-term projects in the Industrial sector. With regards to our backlog, you can expect it to stabilize going forward, unless we encounter unusual ordering patterns like we did a couple of years ago. This situation does present some challenges. As you may know, the backlog decreased in '23 and continues to decrease in '24, though not as significantly. If we assume we reach normal levels moving into '25, we won't be facing a further reduction in backlog. We have taken all these factors into account in our guidance, which we feel confident about, and we aim to achieve it by year-end. As we approach '25, we'll provide an updated outlook.

The next question comes from Saree Boroditsky with Jefferies. Your line is open. Please go ahead.

The gross margin performance was really strong in the quarter, up year-over-year despite the lower volumes. Can you just talk about the contribution of price/cost or other productivity drivers that helped offset that lower factory volume?

Well, I think the starting point is certainly the effectiveness we've had in realized pricing for two full years now. We made an interim adjustment in the middle of '22, and one of the consistencies in our favorable price/cost relationship since then has been our achievements in pricing. The increases we observed in the second half of '22 and throughout '23 were somewhat more pronounced than what we see today, but they have been steady across all business units and regions. Pricing has been the standout factor. Regarding the cost structure, input costs have stabilized, but they have not declined significantly compared to levels before 2021. We're currently managing a higher cost structure for input costs, labor, energy, and other expenses, yet we're managing to cover those costs. A more recent development that has affected us is the reduced ability to absorb all the factory overhead due to a drop in unit volumes mentioned in our opening comments. Nevertheless, the overall price/cost relationship has remained positive.

Yes, I'm pretty happy with the factory performance. Given the fact that we've had volume declines and actually have the margins go up, I would say that we are locked and loaded from a production standpoint and our ability to react when volumes do pick up. We feel like the business is in great shape. And once we get the volume growth, the leverage is going to be really nice to see.

You mentioned incoming orders over the last 6 weeks, up, I believe, 11% with growth in Industrial and Process. Could you just kind of dive into that a bit? What markets or regions are driving this? And then as you think about North America Industrial, you mentioned the timing of finishing sales. It just seems that odd with commentary from a CapEx pause. So could you just help us understand what's driving the strong demand?

Yes. The growth in orders over the past six weeks has been widespread, except for Asia, which remains a challenge for us. Most of this growth comes from the Industrial and Process segments, which have faced declines this year in that region. I wouldn’t place too much emphasis on this, but we thought it was worth sharing as an interesting data point. We aim to be as transparent as possible, and we hope this brings some confidence to our full-year revenue forecast, which is projected to be down low single digits. Regarding the North America Industrial business, we recognized some significant project activity that was booked after customer approval, particularly in the powder industry, which contributed to the growth. If we exclude that, the demand in North America Industrial would likely resemble what we are seeing in Europe.

Our next question is coming from Matt Summerville with D.A. Davidson. Your line is open. Please go ahead.

Within the Process business, it looks like the decrementals have been worsening on a year-to-date basis. Is there something else that's maybe fallen off there when you look at sequentially how that business performed? Just help me understand a little bit of the puts and takes on the top and bottom line.

Matt, this is Chris. Looking at that business, the decrementals have been tough for the whole year, I would say. What we do see within that business, in particular, is when we do see volumes fall off in almost all of the factory locations. It really does impact the decrementals pretty hard across the board. Earlier in the year, we may have had some benefits from one of our factories having volume, which could have offset some of the costs in some of the other locations. But what we're seeing now is it's pretty broad-based across all of the different business units, which is driving that decremental margin.

Yes. I think it's worth noting that as we've progressed through the year, we've observed some additional weakness in our lubrication segments, which have been quite profitable. When I compare the first and second quarters to the third, the revenues in those areas have decreased slightly from quarter to quarter. Another significant factor is the semiconductor sector, which has seen a substantial decline compared to last year, but we are beginning to see an increase in bookings as expected, aligning with the anticipated growth for 2025.

I should leave well enough alone, but I'll add that the two points Mark mentioned also connect once again to the Asia Pacific region, where there is a lot of activity in semiconductors, and the ongoing weakness has been quite dramatic. In the lubrication sector, the mining markets, not just in China but also in Southeast Asia, make up a significant part of that business. Therefore, when those markets are weak, especially in the region, it impacts the Process segment.

And then just as a follow-up. I wondered if you could maybe talk about Corob for a moment. What's the historical organic growth rate of that business looked like? And what is their U.S. presence today? And how are you thinking about being able to leverage your sort of big-box relationships to maybe bring Corob's presence to the market or lift their presence in the local market?

Yes, I appreciate the question. Since we haven't finalized the deal, I'm somewhat restricted in what I can disclose. However, I can share some positive aspects about the business. Firstly, we have a strong understanding of the technologies involved, such as metering and mixing, which are areas where Graco excels. We also see a beneficial overlap in customer bases, as some of their major clients are already Graco customers. Their international presence is significantly larger than in North America, and we are optimistic that they can assist us in the Asia-Pacific region, leveraging their contacts like Asian Paints. We hope to utilize our strong relationships with home center and larger professional channel customers to generate revenue synergies. Historically, their growth has been in the low to mid-single digits, which aligns closely with Graco's typical organic growth rates. Overall, we feel confident about this aspect. Additionally, they have excellent production facilities in Italy and a presence in India that we find appealing. This aligns with our interest in expanding Graco's production capabilities in India, given the market activity there. This collaboration presents an opportunity for us to establish a presence with lower risk than attempting to expand independently. We are excited about this potential as well.

Our next question is from Jeff Hammond with KeyBanc Capital Markets. Please go ahead.

Just wondering, I guess as you talk to customers and you take kind of the last 6 weeks of orders, anything that sticks out that starts to feel better and kind of get you out of this? Right, I think you mentioned Asia is still particularly challenged, but just any kind of green shoots?

Yes. I think that there's obviously a lot of uncertainty out there these days and not anything you guys don't know with all these wars going on, elections, and other things. So I think that there's still a fairly cautious mindset when it comes to our channel partners and end users when they're thinking about making capital type of investments. So again, we thought the data point was interesting. I do think that we're starting to anniversary maybe some of the comps that we've had over the last couple of years. As I mentioned earlier, our backlogs now are kind of at levels where you would have expected them to be on a normalized basis. And so as those backlogs have come down, obviously, customers start to reorder. And hopefully, we've seen sort of a bottoming out here and we can start to see improvement off what's been a couple of tough years.

I guess I would add, Mark touched on the fact that 6 weeks is not a very long period, and this is more anecdotal, though. But just in a recent conversation, taking a look at our EMEA space, businesses that have been okay thus far. This year, for example, the protective coating part of the Contractor business, especially that portion of the market that serves energy and some of the support infrastructure in the Middle East has remained strong. We have been seeing my expectations as somebody was based in Europe years ago, always is a little low on the Industrial side, but there has been a fairly steady drumbeat of regular business, including automotive markets. And finally, even in the Process space, which has been struggling a bit, there has been some recent order activity that is more encouraging than what we have seen earlier in the year.

I appreciate the explanation on the One Graco and the new segment. However, if we look more closely at the segment changes, can you walk us through it? It seems that the Contractor segment remains unchanged, while we're moving a business or two from the Process and Industrial segments. Is it really that straightforward?

I think the way to look at it is that today, Jeff, we have our Industrial division and our Powder division, which will remain within the Industrial group. We will transfer our Lubrication and part of our Process division into that Industrial group. The remaining businesses will be separated out to form the Expansion Markets area, which includes the semiconductor, high-pressure valves, and environmental businesses.

Yes. The only comment I'll make, Jeff, is that, yes, for sure, it's just exactly as Chris described. But historically, we've operated our regions on a matrix basis, where they had a separate P&L and they would make decisions based on what they thought was best for the region. We're moving to global structures where our Industrial business will now manage a global P&L. And they'll be able to make those decisions based on the opportunities they see. Same thing on the Contractor side. We're kind of knocking down the matrixes and we're going to be running global businesses, which we're excited about. It's worked really well for us with Gema. And we think that moving to that approach with Graco will be beneficial as well.

And maybe just last one, M&A pipeline behind the 2 deals. And would you expect that particularly more focus is going to be in this expansion markets? Or do you think you're still looking pretty broad-based?

Well, our pipeline that we have has been built up historically by the divisions. So if I look at the pipeline, I've got about 100 companies in there that we are talking to active, kind of ones that we would consider acquiring if they became available. And so we have good momentum there. And I think the market is a little more favorable today than it was a year ago. And so I'm hopeful that we will see some activity coming from that pipeline that we've already got. Expansion markets, to the extent that we've got businesses already, they have names in the pipeline that they will pursue. But in addition to that, we're also going to challenge that group with doing more research outside of our existing markets and find some spaces that maybe our divisions haven't looked at and see if there's opportunities for Graco to expand into those as well. We don't have any targets, but I do feel really good about the fact that now, we're going to have a group that is charged with that kind of responsibility beyond just looking at things that are really closely adjacent to us.

Our next question is from Andrew Buscaglia with BNP Paribas. Your line is open. Please go ahead.

Yes. I wanted to discuss the new products and product cycle within Contractor. It seems that there hasn't been much acceptance yet, but you're indicating that more products will be released in Q4. Is this influencing your decision to maintain your guidance? Are you noticing any trends in your orders that suggest increased sales in that area?

Well, I think we've done really well with our new products. So I would say that they've driven a lot of incremental revenue in a market that's not been great. I mean, if you look at the macro factors in the housing market in North America, for example, there are still flashing red and yellow signs. The fact that we were flat through the first 6 months in Contractor and we're flat in Q3. I think it's been fairly consistent. It's always hard for us to know exactly what would our revenue benefit we didn't have the new products, but we all feel like if we didn't have those new products, you would see different numbers than what we've reported. As we get into Q4, I think it's not going to be like a big step change. We are excited about some of the products that are coming out in Q4. But I don't know that they're going to have a meaningful impact over a 13-week time period. And yes, that definitely did inform our decision on what we wanted to do for the guide for the full year.

Okay. Yes. Mark, you're talking more about the interesting kind of M&A. Are we looking into like brand new end markets that you don't play in yet that are maybe not less correlated with what you guys do? Or is it brand-new product lines that you're trying to get into? Seems like a slight change versus the past.

Yes, it is a change, and we'll see how it unfolds here. But I mean, there's a lot of fluid handling opportunities in markets that Graco doesn't play in. And I think we've got a lot of expertise there that we can bring. We've got great engineers. We know how to manufacture stuff. We've got a global footprint. We have customers that have some of those needs that we don't really address today. So we'll be challenging our teams to run the numbers, look at the opportunities and see if there's anything for us there that we haven't really looked at in the past.

I wanted to follow up on China. You mentioned that the Industrial and Process sector is facing some challenges and there has been a $10 million decline in that area. My question is what are we considering regarding their quoting and sales pipelines? Are we looking at broader factors, such as government stimulus, or how should we assess the near-term outlook?

Yes, I believe there has been some overcapacity developed in recent years, which has led to a need for adjustment. If we examine our primary markets, the downturn is evident across the board, not confined to any single sector. In semiconductors, automotive, battery, and solar industries, all have seen declines. It seems that a significant amount of capacity was created over the past few years. Ideally, we will reach a balanced state, and business conditions in China will improve compared to the past 12 months. However, I don't expect the government stimulus to have a significant short-term effect, and so far, we haven't observed any positive impact in our results.

It's been a couple of quarters that we've been talking about China now. So is it going to be more of the same, you think, until we get easier comps in the back half of next year? Or do the comps get easier?

I agree with the observation about overcapacity. It's important to distinguish between the general economy and specific markets. Having a background in industrial sectors, I remain optimistic about interesting investments, particularly in batteries and electric vehicles, as well as in some traditional markets. However, the construction sector shows signs of a potential prolonged downturn, especially given recent reports indicating millions of constructed but unoccupied units. I believe that regaining the confidence needed for significant investments in this area will require more than just a liquidity program.

And then on the new segmentation, it looks great, focused on growth. Can you give us an idea of what the Expansion Markets with that growth rate you think might look like?

Well, the organic growth of those segments isn't going to be vastly different from the organic growth at Graco. There's a little more volatility in there with the semiconductor that you'll see from quarter to quarter. But again, the trends there right now look to be pretty favorable. The real piece of that can answer is the inorganic side. And hopefully, again, the team does some work. It's going to take time. We're going to be disciplined when it comes to deploying our capital. But over time, we're hopeful that will become a more meaningful piece of the overall Graco equation.

And as you've gone through this process, could there be divestitures that shake out from it? Or do you feel pretty good about all the P&Ls that are new businesses?

We like what we got. But obviously, our team will be looking at all different opportunities and what makes sense. And right now, there are no obvious things that we think we need to get rid of.

If there are no further questions, I will turn the conference over to Mark Sheahan.

All right. Well, that wraps it up for today. I appreciate everybody dialing in this morning, and I look forward to seeing you here in Q4 and during next quarter's call.

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