Good morning and welcome to the Fourth 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 your questions and answers after the 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 2023 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.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 obligation to update these statements in light of new information of future events. I will now turn the conference over to Chris Knutson, Vice President, Controller, and Chief Accounting Officer.

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 fourth quarter sales of $549 million, a decrease of 3% from the same quarter last year. Acquisitions contributed 3% sales growth in the quarter. Excluding acquisitions, fourth quarter sales decreased 6%. The effect of currency translation had no significant impact on sales. Reported net earnings decreased 1% to $109 million for the quarter or $0.63 per diluted share. Excluding the impact of business reorganization charges, excess tax benefits from stock option exercises, and other prior year items, adjusted non-GAAP net earnings were $110 million or $0.64 per diluted share, a decrease of 20%. The gross margin rate decreased 200 basis points in the quarter. Realized pricing was not enough to offset sales volume declines occurring in all segments, unfavorable product and channel mix, and acquisition-related impacts. Machining and assembly hours declined on lower sales volume and inventory reduction efforts. Total operating expenses increased $19 million or 15% in the quarter, mainly due to business reorganization costs of $7 million, expenses from acquired operations of $7 million, and litigation costs in the contractor segment associated with the trial that concluded in December of 2024 of $7 million. Total spend related to this legal matter was $9 million for the quarter and $16 million for the year. Reductions in volume and earnings-based expenses of $6 million partially offset this increase. Lower gross margin, along with increased expenses during the quarter, resulted in an operating margin rate of 24% compared to 30% for the same quarter last year. Excluding business reorganization costs, the Industrial segment operating margin rate for the quarter was 33% compared to 37% for the same quarter last year, and the Process segment operating margin rate for the quarter was 29% compared to 28% for the same quarter last year. Excluding acquisitions and related costs, business reorganization charges, and litigation spending previously mentioned, the Contractor segment operating margin rate for the quarter was 27% compared to 29% for the same quarter last year. The total company operating margin rate, excluding these impacts for the quarter was 29%, a decline of 1 percentage point compared to the same quarter last year. Excluding the impact of the pension settlement charge in 2023, interest and other increased $2 million during the quarter, driven primarily by increased interest income on cash held. The adjusted effective tax rate was 21.5% for the quarter, due mainly to the unfavorable effects of foreign earnings taxed at higher rates. Cash provided by operations totaled $622 million for the year, a decrease of $29 million from last year, driven mostly by lower net earnings. Cash provided by operations as a percent of reported net earnings is 128% for the year. Significant year-to-date uses of cash include repurchases of 399,000 shares for $31 million; acquisitions of $242 million; dividends of $172 million; and capital expenditures of $107 million, of which $67 million related to facility expansion projects. These cash uses were offset by share issuances of $66 million. A few comments as we move forward to 2025. Based on current exchange rates, assuming the same volumes, mix of products, and mix of business by currency as in 2024, movement in foreign currencies would have an unfavorable impact of approximately 1 percentage point on net sales and 2 percentage points on net earnings for the full year 2025. Unallocated corporate expenses are projected to be $39 million to $42 million. The effective tax rate is expected to be 19.5% to 20.5%, excluding any impact from excess tax benefits related to stock option exercises and other one-time items. We expect capital expenditures to be approximately $50 million to $60 million, as we have now completed expansion projects for nearly all of our operations. Finally, effective January 1, 2025, the company moved to a global customer-centric operating structure, resulting in a nonrecurring business reorganization charge of $8 million in the fourth quarter. Annual savings are estimated to be approximately $16 million. The new operating structure consists of three segments: Industrial, Expansion Markets, and Contractor. The Industrial segment consists of the newly formed Industrial division and the Powder division, the company's previous industrial and lubrication equipment divisions, along with the process transfer equipment business that was part of the company's process division combined to form the new global industrial division. The Powder division remains unchanged. The company's environmental, semiconductor, high-pressure valves, and electric motors businesses, together with select future ventures and acquisitions in new or adjacent markets, have been combined to create the newly formed Expansion Markets segment. The Contractor segment remains unchanged as a reporting statement relative to prior periods. Segment operating results will be reported under the new organizational structure beginning with the first quarter of 2025. Segment information recast to conform to this new structure is available as supplemental information. I'll now turn the call over to Mark for further segment and regional commentary.

Thank you, Chris. Good morning, everyone. All my comments will be on an organic constant currency basis. I'd like to start today by welcoming Corob to the Graco team. We closed the acquisition in November, and integration activities are underway. Initial results have been as expected, generating 3% revenue growth in the fourth quarter. Corob brings high-tech dispensing and mixing solutions to Graco in the growing paint and coating machinery and manufacturing category. This acquisition will enable us to leverage our existing products and channel while expanding our global manufacturing footprint. Overall, the year has been challenging, and the business landscape has been soft across many of our end markets. Declines in key industrial markets in China, along with weakness in our semiconductor business, drove much of the decline during the year. The softness continued into the fourth quarter, resulting in a 6% sales decline. These results were driven by lower sales volume in all segments and regions, except Process North America and Contractor Asia Pacific. Sales in the Process segment improved during the quarter as we had growth across major project categories, including vehicle service, industrial lubrication, and environmental. While we continue to see revenue declines in the semiconductor markets globally, we had growth in North America in the quarter and have seen positive booking momentum in all regions. Protective Coatings activities remained strong with growth in all regions. In particular, the container market has improved throughout the year in Asia Pacific. As Chris previously discussed, the reported results were lower during the fourth quarter compared to the rest of the year. However, excluding initiatives and unusual items in the quarter, revenue declined 6%, resulting in a 12% reduction in operating earnings, which is consistent with the full year. The slower markets allowed us to speed up our M&A and reorganization activities that we believe will set us up for future growth. As we enter 2025, we expect these initiatives to drive incremental volume, along with our pricing actions, resulting in strong incremental margins. In addition, our M&A pipeline remains active, and we're excited about the possibilities the new organizational structure can bring as we focus on new and adjacent markets. Now turning to some commentary on our segments and regions. Contractor declined 3% for the quarter and was down 1% for the year, driven primarily by softness in the U.S. housing and remodeling markets. Protective Coatings were a bright spot with growth across all regions for both the fourth quarter and for the year. Steady performance in this market has been helped by infrastructure investments, increases in the container market, along with rail, marine, and fireproofing. While the current construction environment remains mixed and pressures on housing affordability are likely to continue, our new products have been successful and are expected to contribute to growth. During the fourth quarter, we launched a new PowerShot XT electronic-powered airless paint gun which allows contractors to spray all day on a single charge. This product, along with additional 2025 releases and the full-year impact of our 2024 launches, gives us optimism as we enter the new year, despite a mixed picture in the global construction markets. Industrial segment revenue declined 13% for the quarter and was down 6% for the full year. China was weak, particularly in our sealants and adhesive products which impact many of our key end markets such as automotive, solar, and battery. Despite the revenue declines, incoming order activity in China throughout 2024 has been steady, albeit at a lower level than 2023. We have seen positive signs as quoting activity has been improving, and our sales team has expressed optimism as we enter the new year. The timing of completion and acceptance of Powder Finishing Systems also resulted in a decline in the quarter. Booking activity in the Powder division has improved, and we carry a slightly larger-than-normal backlog into the new year. Despite the tough year, the new industrial teams are energized by the full suite of Graco products and are focused on executing under the new customer-centric approach. Process was flat for the quarter but down 8% for the year. Growth across the Americas was offset by declines across EMEA and Asia Pacific. Sales in the fourth quarter were the largest of the year and grew sequentially by 13%. Total revenue for the quarter was consistent with the prior year quarterly run rates. Order activity increased to low double digits for the quarter, and our quarterly bookings were the largest we have seen in the past two years. However, backlog is back to normal which contributed heavily to the prior year sales, especially in the semiconductor market. Moving on to our outlook. Our team demonstrated resilience, overcoming both commercial and operational obstacles in a challenging year with the dedication and resolve that define our company. We continue to generate strong cash flow and our balance sheet gives us flexibility. Over the past five years, we've invested heavily in our manufacturing footprint and automation capabilities which puts us in a good position to meet future demand. Heading into 2025, we do anticipate that some of the challenging end market conditions we experienced last year will persist, but we are optimistic that the worst is behind us. Therefore, we are initiating a full year outlook for 2025 of low single-digit sales growth on an organic constant currency basis. In closing, I'd like to thank our employees, suppliers, customers, and distributor partners around the world for their contributions throughout the year. It's been challenging, but in Graco fashion, we've been able to overcome the hurdles and set ourselves up for future long-term growth. While there are many things that contribute to our culture, it's our loyal and hard-working employees that make this company great. That concludes our prepared remarks. Operator, we're ready for the first question.

And our first question comes from Deane Dray with RBC Capital Markets.

Mark, you provided good color regarding geographies and end markets, but can you just frame for us how about versus your expectations? I mean, China has been weak, but it sounded like it stayed weak, and same on semiconductor being soft. But just kind of versus your expectations about the quarter. And then you also typically provide orders for the past 6 weeks. You said things have been steady, but if you could give us that data point, that would be a great start?

Sure, I'll give it a try. Overall, I believe our Process division exceeded our expectations, mainly due to strong performance in our environmental, LED, and high-pressure valve businesses, which performed better than anticipated. The booking activity in these areas looks promising as we approach 2025. However, the Industrial segment fell short of our expectations, largely due to a challenging comparison from the fourth quarter of last year. We anticipated that revenues would be affected, but the declines in Asia Pacific and within our sealant and adhesive business were sharper than last year's Q4. Additionally, Contractor also did not meet our expectations, as we did not see the typical year-end orders. This likely reflects the sluggish conditions in many end markets, which we noticed throughout the year. Overall, a 1% decline in Contractor business for the full year is a commendable result given the tough economic landscape. Regarding order rates and our outlook, we examined last year's second half to inform our projections, comparing that with our billing experience to arrive at our estimates. Recent activity seems to align with our guidance at this point.

Good, that's really helpful. And just the second question, and I know we're still early in the process, but lots of questions and anticipations of how tariffs might play out. And Graco is in a unique position. And look, this is not new. We've been through this before, but just a lot of this is reminding us, but the idea here, you're unique in that you have a concentrated manufacturing footprint in the Minneapolis area, less globally than some of your peers. How does that present itself as a risk or just different impact on tariffs? And how does that factor into your typical January price increase, one price increase per year? Would you delay that? How might that impact as well?

We didn't specifically consider tariffs because when we prepare our price list and communicate with distributors, we need to give them advance notice. We did this in late Q3 or early Q4 of '24 before the tariff discussions became more pronounced. We've done some calculations internally, but we don't claim to be experts on what will actually be implemented versus what is being discussed. From what we've heard and its potential impact on Graco, it seems manageable. We didn't include it in the January price increase, but we can decide to take further pricing actions if necessary. Additionally, the conversation around tax rates is noteworthy. The idea of offering lower corporate tax rates for companies manufacturing in the U.S. could be advantageous for us, given our strong presence in North America. If that materializes, it could be beneficial for Graco.

And our next question comes from the line of Mike Halloran with Baird.

So just clarifying the outlook quick. If I peel that back, it sounds like you're saying, if you look at the current order rates and then you layer on, call it, normal conversion based on last year's incidences and, call it, relatively normal seasonality, that's how you get to the low single digits. In other words, not really embedding any real improvement here, just kind of a steady state from current levels, and that should be enough? Or am I missing that?

Yes. I think that's accurate. I always tell people, I think I've told you personally that our ability to forecast isn't real great just because of the fact that we're such a short-cycle business. But as I think we said in the comments, the incoming levels of orders have been fairly consistent throughout the back half of the year. And so, we feel confident that at least it feels like things have evened out. We do have our pricing actions that should be helpful. We've got some new products that we're launching, which should be helpful, and all of that factored into our analysis and what we're coming up with on the outlook for the year.

Yes, this is David. I would add that, again, reflecting on the comments, the significant challenges we've discussed in China, particularly in our industrial sector, specifically within our adhesives and sealants, as well as the semiconductor segments, have stabilized at the current rates. The substantial difficulties we faced throughout the year have leveled off. Given the performance observed across most of our businesses in 2024, especially in the latter half, along with the relatively stable performance in those three or four markets that were previously quite negative, we feel reasonably optimistic about anticipating growth with normal seasonal patterns in markets like contractor.

No, that helps. I have a couple of questions about margins. First, Chris provided some clarity, which I appreciate. However, I want to confirm my understanding of the Contractor margins. It seems like you were indicating a 27% apples-for-apples margin compared to last year, excluding one-time items and the acquisition. Can you clarify what the margin would look like going forward or just for this quarter if we exclude the step-up charges related to bringing Corob online? Additionally, how should we think about the representative run rate from this point onwards once everything is normalized?

So I think, Mike, with the step-up charges, we had one-time charges related to the acquisition of about $3 million in there. So if you take that into account with the contractor, you're probably going to look at somewhere for this quarter somewhere in that 25% to 26% range if you just subtract everything else out.

Alright, that's helpful. And then the reorganization savings, it's a big number, a little bigger than I was expecting. Twofold. One, is that expected to be realized starting in the first quarter? And then secondarily, how does that shake out across the segments? And where does that show up?

I would say yes, it should start right away. There was a concerted effort to complete the heavy lifting in the fourth quarter, which has been achieved, and the associated costs are reflected in the charges. Throughout the organization, we are adapting to the new arrangement, and you should start seeing those benefits emerge early in the first quarter. In terms of the segments under the new structure, the most significant work was done in the industrial space where we combined several parts of the legacy Graco organization. However, the Contractor and Expansion markets also contributed, and you will observe benefits to varying extents across all three areas.

I will say, Mike, if you're going to split it out between the different segments that the charges as they're put in there for each of the segments today is a good proxy as to what the savings will run next year. And as you put it into the new segment structure, we're moving about two-thirds of the revenue from the Process segment to industrial, and the cost and the savings should be allocated similarly.

Our next question comes from the line of Saree Boroditsky with Jefferies.

So just building on the orders question. I think during the last earnings call, you saw some improvement in the incoming order rates over the prior 6 weeks. In this release, you guys have obviously talked about consistent rates in the fourth quarter. So did you see orders slow down post October? And what have you seen more recently?

Yes, we did notice a slight slowdown that caught us by surprise. The orders in November and December were softer than what we experienced earlier in the quarter. Regarding the quarter's performance compared to my expectations, I believe I mentioned before that it was quite good for the Process Group, somewhat disappointing for Contractors, and more significantly disappointing for the Industrial sector. The most recent order trends we have observed suggest that they align with our guidance of low single-digit growth for the year.

And then your 2025 outlook chart, I believe you used your prior segments. So just curious if you could break it out on how you're thinking about the updated industrial and expansion markets in your traditional pie chart framework?

Yes. Again, I do believe that we are looking for growth in both those groups on a full year basis, but we do recognize that there still will be some challenges, and I think that that's really what we tried to reflect in the charts.

And our next question comes from the line of Matt Summerville with D.A. Davidson.

Mark, with respect to this reorganization and kind of Graco's historical M&A practice, how are you changing the way the net is cast, if you will? And what kinds of things are you maybe willing to look at that maybe wouldn't have hit the radar screen of some of your predecessors? How should we be thinking about that?

Yes, it's a good question, and I might actually just expand a little bit to you, talk a little bit about why we were doing the reorg and what we expect to get from M&A's part of it. But it's not the full story. So really, there's a number of things that we believe are going to be the result of what we've done. Number one, we want to leverage our customers and our channel better. By combining the industrial, the LED, the Process group with the diaphragm pumps, we really do believe that we'll be able to offer a more complete picture of Graco product to our channel partners, as opposed to having several people interact with those channel partners and their customers. The customers are very common across those product lines, and the channel partners are also very common. So that is one thing that we hope to get. We also hope to have operational efficiencies by eliminating a lot of the overlap that existed in the company across those separate business units and primarily in the areas of sales, marketing, and engineering. And that's really what you've seen in terms of the benefits that we're going to get out of the costs that we've taken out. We also will be focusing more on a global organization, taking down the matrix structure that we had previously, so that our teams can focus on global customers and global accounts and make the investment decisions and allocate the resources appropriately as they see fit and not have to go to a regional leader to ask for approval to get the allocation of the funds and the resources that you need that way. With respect to M&A, we created this group called Expansion Markets. And what we put in there were our legacy semiconductor business, our environmental business, and our high-pressure valve business. And we've asked that team to really evaluate those assets and look for ways to expand them, really with a focus on 'Can we do more in those areas?' We like them. We think that there are opportunities, and if we put a focus on it, we think that there's a better chance of us being able to expand there. But in addition to that, we've also asked that group to work with our strategy team and our corporate development team to look for new sandboxes for Graco to play in, beyond the stuff that we would have looked at historically. We are sorting through some areas right now. We've got a couple of things that we're looking at. I don't want to share those with you, but we're talking about fairly sizable fluid handling markets and applications that the company hasn't historically been involved with. And we do the detailed work. We want to make sure that it makes sense. We want to figure out the strategic fit for the company; to the extent that things line up, then we start to identify targets and we go after those things. So I think it opens up the lens a little bit for us. We never really had anybody at the company that was looking beyond what we currently had in the portfolio. And so I think that, that's really what that group is charged with doing.

That's helpful. As a follow-up, and maybe I just missed it. I don't remember you guys talking about this sort of litigation that was seemingly ongoing for a period that has since wrapped up. Can you maybe talk a little bit about the genesis and kind of the conclusion. And I guess, did I hear that you had $16 million of what we should consider to be nonrecurring charges this year? And I guess, would that have hit the segment, would that have hit at corporate? More detail on that would be helpful.

Yes, the $16 million is a correct number. It was in the Contractor business. It was litigation that I really don't want to comment on. It's done, it's been taken care of, and we're going to move off of it.

Just to clarify, Mark, that entire $16 million impacted the operating profit of the Contractor segment, and you did not exclude any of that from your financials this year, correct?

That is correct. Yes. That was the full year number, and I think we had about $8 million or $9 million in the fourth quarter.

$9 million in the fourth quarter we did. The segment chart on, I think, Page 13 of the slide deck for Contractor does a pretty good job of breaking the special items out, including the litigation.

And our next question comes from the line of Bryan Blair with Oppenheimer.

I was hoping you could offer a little more color on the early innings of Corob integration. What continues to excite your team? If there have been any surprises to date? And having now owned the asset for a bit, curious if you're willing to share 2025 outlook for revenue and margin contribution and perhaps more importantly, looking forward, where your team thinks profitability can climb medium term?

Yes. It's early days, Bryan, but we've been pleased with the revenue so far. I mean, for the 8 weeks that we've owned it or however long it's been. We like the team a lot. We feel pretty confident that they've got good momentum as we enter into 2025. We are expecting growth. It's not going to be anything heroic, but probably the low single-digit growth for that group is what we're aiming for in 2025. And all in all, we're excited on a number of fronts. But in particular, the business doesn't have a tremendously strong footprint here in North America. And we believe that with the great brand that we have and the good reputation that Graco has with some of the larger companies that purchase this equipment, we feel like we'll at least have a good chance of being able to introduce Corob to those customers. Whether we're successful or not really depends on us and how good of a job that we do, but we think that it could open up some doors that Corob would have had a harder time opening on their own as a smaller independent company.

Definitely makes sense. It's encouraging to hear that you're expecting growth in China for the year, admittedly against easy comps, but nonetheless, that momentum is a good going. I'm wondering if you could just offer a little more detail on what you're seeing on a run rate basis? And perhaps comment on whether Corob relationships factor into or influence your confidence in returning to growth this year?

Yes. I think with respect to China, it's more of the Graco legacy business. We think we've kind of gotten through the worst of it. I would say that it's, I'll call it, plateaued or gotten to the point where we've reached equilibrium. And our hope is that now that we'll get some upside as the market grows a little bit and we implement our pricing actions, and our team feels fairly confident. Obviously, we have easier comps that factor into the equation as well. So it's more on the legacy side of the operation that we feel like China should get back to a growth trajectory here in 2025. Corob does give us a little bit more exposure in AP. We're excited about their India manufacturing footprint. We think that there are some opportunities there for us to perhaps leverage that. And it just gives us a little bit more of a presence in that country where, I think, as I said before, it's a country that we've had on our radar for a while to grow the Graco presence.

I should leave well enough alone. I'll just add that we received positive feedback from the new industrial sales team and leadership in China last week. I'm optimistic about this year, even regarding some areas that were particularly weak for us in 2024, such as battery, solar, and automotive markets. We are already noticing some project activity that was missing for much of last year.

And our next question comes from the line of Joe Ritchie with Goldman Sachs.

I'm trying to clarify the one-time items that could positively impact 2025. Looking at Slide 5, it seems the business reorganization costs will no longer be a factor, the additional litigation costs of 13 will also be eliminated, and I believe you mentioned that the savings from the reorganization should total $16 million. Is that all anticipated for 2025? Did I capture everything correctly?

I will say, Joe, regarding the litigation, the total spend for the year was $16 million, which will no longer be a factor. However, you did get the other aspects correct.

Got it. So about $40 million in total. Is there anything that should be offsetting this? Obviously, we'll have a clearer picture of how volumes turn out for the year, but are there any significant offsets we need to take into account from a margin perspective?

No, I don't see anything that would be major that would offset that.

Yes. I think if you were to look at the pieces, I think the semiconductor is really the wildcard there, and that was the main reason for the reduction in '24. And we do expect that, that market is going to be firmer, and that we'll get back to a little bit of growth there in '25. The other two businesses have been pretty steady performers with some decent growth here in '24 for our environmental business. We kind of expect that to continue and same thing on the high-pressure valves.

And our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

Just on Contractor, a couple of questions. One, last year, I think your new product timing was more 2Q versus 1Q based on timing. I'm just wondering how you're thinking about that comp and new products coming in? And then just with kind of rates stuck high, lower existing homes, lower new home sales, kind of what you're hearing from the field paint stores contractors about just the paint business in particular?

Yes, you're right. I think you're correct that our new product launches last year came in a little bit late for CED. I think they were in Q2 versus Q1. So perhaps that creates a little bit easier comp for them in the first quarter than what you might see in the second quarter, but I'll let you guys figure that out and do the modeling on that piece of it. The market itself, I think, is I'd call it, stable to potentially improving. Housing starts are kind of projected to be flat here in '25. New home sales are projected to come up a little bit. And that does help us because every time somebody moves, they tend to fix it up or paint it, and then the new people move in, and they repaint it again. So to the extent that existing home sales actually trend up, I think that would be favorable for us. Remodeling is kind of hanging in there. Interest rates, you guys know more about that than I do, but they appear to be stable to maybe slightly favorable for us. And I think on the commercial side, we're expecting just a real small amount of growth there as well. So you put the whole thing together, and I feel like it's at least as favorable in the market as what we've had in the last couple of years, maybe a little bit of upside.

Okay. Regarding the timing in Powder Coatings, did that business move from the fourth quarter to the first quarter? Can you provide any details on its scale?

I don't think so. It really goes back to last year's Q4 and the industrial numbers, which included a lot of Powder Project activity. The absence of that in Q4 this year created a tough comparison for that group. We noted in our comments that their backlog is currently a bit higher than usual, so we feel positive about the trends in that part of the business as we move into '25. There shouldn't be any significant changes to consider regarding what would have occurred in '24 that is now expected in '25.

Yes, that’s definitely an area where we have more visibility compared to most of our legacy businesses. Mark is correct. We have a backlog that appears to be somewhat higher than normal for the size of the business. Additionally, we noticed a bit of stability in order rates as the fourth quarter concluded, which gives us a positive outlook as we move into this year. This could indicate favorable conditions not only for the first and second quarters but also for the latter half of the year.

We'll have some carryover through the first quarter. But after the first quarter, we'll have gone through all of the step up.

Our next question comes from the line of Ross Sparenblek with William Blair.

This is Sam Karlov on for Ross. Regarding the strength in the legacy Americas Process segment, is there anything to read into as it relates to Quantum electric pumps? And are there any updates on where you think you are in the customer trial base?

I don't think there's anything in particular. I think it was just across the board kind of general strength. A lot of it actually was in our lubrication businesses which have been good, but they did have a nice strong finish to the year.

Our next question comes from Andrew Buscaglia with BNP Paribas.

I just want to clarify your earlier comments on Corob. Should we expect a mid-single-digit contribution to sales this year? Can you provide any specifics on EPS accretion for either year one or year two?

Yes. I think if you annualize the revenue, it’s probably around 4% to 5%. This will help our growth rate in 2025, so you can add that on top. I also believe it will be slightly beneficial to EPS for the full year. But Chris will provide more details.

It's probably going to be accretive in 2026 for the full year as we get through some of the one-time costs and things happening this year. That's kind of the estimate right now.

Okay. And then obviously, you guys are signaling a little bit more M&A ahead potentially. Can you talk about your thoughts on accretion when you make these deals? And then for investors that might be concerned around your return on invested capital, which is very strong. Any thoughts about how you're thinking about returns and protecting that number?

We believe that maintaining discipline as a buyer is essential for justifying any major capital project. This philosophy guides our approach to acquisitions, which has been a factor in some notable transactions over the past couple of years. While there have been large deals, the valuation multiples, particularly in niche industrial sectors like pharma and healthcare, have tended to be higher. Nonetheless, we are hopeful that the activity from private equity firms could present some promising business opportunities. Our development team keeps close connections with banks and anticipates that several significant properties in the flow control sector may become available later in the first and second quarters. Our primary goal is to seek out quality opportunities. From experience, I understand the importance of acquiring good businesses while maintaining our buyer's discipline. We will adjust according to changes in interest rates and the availability of solid properties in the market in the coming year. We remain optimistic, and as mentioned, our strong financial position allows us to act swiftly when the right opportunity arises, as demonstrated with Corob last year.

And David, maybe just following on that comment, are the deals you're looking at, are these opportunities where you see some sort of margin potential where you can improve them? Are you mostly after companies that are already fairly fine-tuned to just get you into the different adjacent markets and help you grow from there?

I believe it depends on perspective, and I appreciate alternative viewpoints. We approach opportunities with an open mind and are particularly interested in niche markets that share characteristics with our current markets, focusing on essential business needs and preferring recurring revenue. From our experience, we recognize that when we acquire businesses that may have been privately held or managed by founding families, they often lack the capital needed to upgrade their facilities and equipment to meet our operational standards. Typically, when we invest our capital into opportunities we've pursued over the years, such as in powder coating and the semiconductor industry, we've seen significant margin improvements. I value this aspect, even though the businesses themselves were already solid to begin with.

Yes, I'll just add on that. We run DCF models. We're looking to get double-digit rates of return for our shareholders. We are looking at companies that we can't help them either grow their top line or expand their margins. And so we feel like the businesses that we have acquired, we've got a good track record of being able to do that, and that's really what we're targeting.

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

Okay. Well, that concludes today's call. I want to thank you for participating and have a good day.

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