Graco Inc Q4 FY2025 Earnings Call

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 website at www.graco.com. Graco has additional information available in a PowerPoint slide presentation, which is available as part of the webcast player. 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 2024 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 or 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 am 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 more commentary. Yesterday, Graco reported fourth quarter sales of $593 million, an increase of 8% from the same quarter last year. Acquisitions contributed 4%, currency translation 2% and organic sales another 2% to growth in the quarter. Reported net earnings increased 22% to $133 million or $0.79 per diluted share. Excluding the impact of excess tax benefits from stock option exercises, a nonrecurring tax benefit and the prior year business reorganization charges, adjusted non-GAAP net earnings were $0.77 per diluted share, an increase of 10%. The gross margin rate increased 80 basis points compared to the same quarter last year. The effects of our targeted interim pricing actions more than offset higher product costs resulting from lower factory volumes, unfavorable effects of lower margin rates from acquired operations and incremental tariffs. Tariffs affected product costs by $4 million in the quarter, resulting in a 70 basis point decline in the gross margin rate. For the full year, tariffs of $14 million had an unfavorable impact of 60 basis points on the gross margin rate. Operating expenses decreased $1 million or 1% in the quarter. The decline was driven primarily by business reorganization costs of $7 million and litigation costs of $9 million from the prior year that did not recur. Offsetting these costs were incremental expenses of acquired operations of $7 million and higher incentive-based costs. Contractor segment operating margin rate for the quarter was 24% and was consistent for the same period last year, excluding business reorganization charges and litigation spending. Expansion markets segment operating margin was 28% compared to 20% for the same quarter last year. Expansion markets had upfront electric motor license fee revenue of $5 million in the quarter and $7 million for the full year. These upfront license fees increased the operating margin rate for the quarter by 9 percentage points and 3 percentage points for the full year. Total company adjusted operating earnings increased $21 million or 15% during the quarter. Adjusted operating earnings as a percentage of sales was 27% for the quarter compared to 25% for the same period last year. The full year adjusted effective tax rate was 20.5%, which is consistent with our expected full year and prior year tax rate on an as-adjusted basis. Cash provided by operations totaled $684 million for the year, an increase of $62 million or 10%. Excluding acquisitions, inventory was $336 million, down $46 million for the full year and down $140 million from its peak of $476 million at the end of 2022. Inventory is currently at its lowest level since June 2021. Cash provided by operations as a percentage of adjusted net earnings was 153% for the quarter and 137% for the year-to-date. Significant year-to-date uses of cash include share repurchases of 5.1 million shares, totaling $423 million, dividends of $183 million, acquisitions of $135 million and capital expenditures of $46 million. These cash uses were offset by share issuances of $37 million. A few comments as we move forward to 2026. Based on current exchange rates, assuming similar volumes, mix of products and mix of business by currency, as in 2025, movement in foreign currencies would have a 1% favorable impact on net sales and net earnings for the full year 2026. The effective tax rate is expected to be 20% to 21%, excluding any impact from excess tax benefits related to stock option exercises and other one-time items. Projected unallocated corporate expenses and capital expenditures are projected to be $40 million to $43 million and $90 million to $100 million, excluding approximately $50 million for facility expansion projects for the full year, respectively. Finally, 2027 will be a 53-week year with an extra week occurring in the fourth quarter. I will now turn the call over to Mark for further segment and regional commentary.

Thank you, Chris. Good morning, everyone. I'm pleased to report record sales in both the fourth quarter and for the full year. Sales were up 8% in the fourth quarter with acquisitions contributing 4% of the growth. Organic sales at constant currency were up 2% from growth in both the Industrial and Contractor segments. Despite continued sluggish conditions in core construction markets, improved performance in the home center channel, and double-digit growth in the COROB business allowed contractors to achieve organic growth in every region this quarter. Our Industrial business had 11% growth in the quarter with strong organic performance in both the Americas and EMEA due to broad-based market improvement and the timing of completion and acceptance of systems-based projects. For the year, acquisitions contributed $113 million of revenue or 5% growth. We have successfully integrated COROB, while also completing the acquisitions of Radia and Color Service. Together, these businesses are expected to generate nearly $190 million in full year revenue. They have extended our market reach, provided new product lines and innovation and expanded our manufacturing footprint. Our acquisition pipeline is strong, and we are committed to generating one-third of our long-term revenue growth through executing smart and disciplined strategic acquisitions. In 2025, operating cash flow of $684 million was up 10% from 2024 and was 137% of our adjusted net earnings for the year. This impressive cash flow has allowed us to invest $135 million in acquisitions, deploying nearly $50 million in capital expenditures, and returned over $600 million to shareholders in dividends and share repurchases. We finished the year in a net cash position of $600 million. In summary, our balance sheet is strong, providing us with the flexibility to achieve our long-term objectives. Turning to segment performance. Contractor segment sales increased 8% in the fourth quarter with acquisitions contributing 5%, currency translation 2% and organic sales another 1% of the growth. The biggest driver of the organic growth was COROB, which grew 25% in the quarter. Sales volume improved with this being COROB's largest fourth quarter in the past three years. The COROB acquisition has performed as expected, and the Radia acquisition brings added capabilities to this attractive and growing space. The home center channel had growth in the quarter. However, foot traffic in the channel is still light. The pro paint channel grew sequentially despite slower sales compared to last year. The overall market for contractor equipment is flat with affordability concerns keeping activity subdued. Despite flat conditions, we've been investing in new products, which along with our pricing actions and the acquisitions previously mentioned are having a positive impact on our outlook this year. Turning to the Industrial segment. We delivered a strong fourth quarter with sales up 11%, driven by a combination of solid organic performance and contributions from the Color Service acquisitions. Organic growth of 5% was primarily the result of project completions in Powder Finishing systems as well as good growth in the Americas and EMEA, offsetting declines in Asia Pacific, particularly China. For the full year, China grew in both revenue and bookings. Incremental margins for this segment were remarkably strong at 76% for the quarter and 117% for the full year, reflecting the benefits of One Graco. Expansion markets declined 6% in the quarter but grew for the full year with high single-digit full year sales growth in our semiconductor business. During the quarter, we had declines in our semiconductor, high-pressure valve and environmental businesses as compared to last year when we saw increased activity in all regions. Despite the quarterly decline, we had sequential revenue growth with this being our largest revenue quarter of the year. As Chris mentioned, our Electronic Motor business recognized upfront license fees resulting from the work our team has done to introduce this technology to OEMs and motor manufacturers. This proven technology is in Graco products today. And while we're optimistic about opportunities for signing more license agreements in the coming years, our revenue outlook does not include any estimates for upfront license fees in 2026. Moving on to our outlook. As we reflect on the past year, we are pleased that revenue grew in each segment and region. Both the industrial and expansion market segments grew organically for the full year, and we are optimistic about the growth in contract during the fourth quarter. We're also pleased with the performance and contributions made by COROB, Color Service and Radia this year, and we're hopeful that we will continue to see actionable opportunities in 2026. Graco has engaged employees that are focused on our key initiatives of product innovation, pursuing strategic acquisitions and advancing the One Graco operating model. We're offering 2026 revenue guidance of low single-digit organic growth on a constant currency basis and mid-single-digit growth after factoring in expected incremental sales from the Color Service and Radia acquisitions. In closing, as we enter our 100th year, I would like to thank our employees, suppliers, distributor partners and customers around the world for their contributions. While the last few years have been challenging for manufacturers like Graco, we navigated the obstacles and delivered meaningful value to our customers and shareholders. There are many things that contribute to our confidence in the future, but none more than our loyal and hard-working employees. That concludes our prepared remarks. Operator, we're ready for questions.

Our first question comes from Deane Dray of RBC Capital Markets.

I'll just start off with a clarification. We haven't seen one of these called out before, the upfront licensing fee associated with the electric pumps. And there have been some inbound questions about, is this a one-time event? Or is it just the nature of this new product? So I just want to get some background here. You said it's going to OEMs and motor manufacturers. Is this going to be a lumpy type of revenue stream? Please provide some color to start.

Yes, I can start. A handful of years ago, we bought a company called ETM, and we bought the company because they make a high torque, quiet compact motor that we thought would fit pretty well within some of the Graco product lines. We actually found the company because we liked the technology so much. We also recognized that there was potential that we could introduce that technology to other OEMs. A couple of years ago, we pivoted to a team that is now really focused on licensing the technology to OEMs and motor manufacturers that are non-competitive with Graco but see the benefits of having a compact, high torque, quiet motor for their types of applications. So it's probably going to be lumpy. I'm really happy with the work that the team has done in getting some upfront agreements. There will be royalties on the back end that we'll talk about when they're meaningful enough. And of course, we'll highlight any other lumpy payments as they come in throughout the year. We want to ensure that you don't feel like you need to model it in, in terms of our outlook for the full year on the organic constant currency. We really have not factored in any of these upfront fees into that analysis. The motors are in Graco products today. You can find them in our contractor products. They're very well received in the marketplace.

Yes. I would just add to that, that because we already have successfully implemented it in several of our products into specific applications. Part of the process of an agreement with an OEM or another party is they will be used for what are defined as very specific applications.

That's all good to hear, and I appreciate that color. It's a little bit unique, but our bias would be just to include that in your operating results and not try to strip it out. But if you could highlight for us if there's any kind of lumpiness in the future quarters, that would be helpful. The second question is more on the forward look. No surprise to us in the low single-digits organic guide. That's kind of where we were looking. What can you say in terms of the geographic conditions that you're looking at in '26? Interestingly, the traffic light slide only has the rearview mirror for 2025, not the forward look. So what would be the broad brush changes any that you would highlight there? Anything about the last five weeks of inbound orders would be helpful, too.

Okay. Yes, Dean, when you mentioned we hadn't made any updates, I took that personally. We did review the processes. I believe that while the data isn't deteriorating, expecting a significant increase in coverage is a bit premature. I feel confident about our current position. It still resembles what we shared with you in the fourth quarter. Stay tuned, and I'm optimistic we'll be able to achieve some progress in the coming months.

Yes, I'd probably say that we had a low single-digit guide last year. We're coming out with a low single-digit guide. So at the top level, looking at it, it doesn't really surprise me a whole lot that the dots didn't change colors meaningfully. I'd sort of characterize the geographic conditions as we kind of see them as low single digits, up into craziness on the upside. Certainly, hopefully, we're not going to experience another leg down. We're not anticipating that. Overall, we feel confident that we can deliver low single-digit growth in 2026.

And the recent order trends?

Yes, the recent order trends would support that outlook.

Our next question is from Mike Halloran of Baird.

So maybe just a question on the fourth quarter and then reverting back to some third quarter commentary. Did you see any signs of pull-forward demand in the fourth quarter, particularly on the contractor side? Also, in the third quarter, you referenced some green shoots. Any thoughts on whether you're still seeing signs of green shoots, or is it just pretty steady out there at this point? Please specifically refer to some of the green shoots you were seeing before and provide an update on that side.

I don't believe there was any pull forward. It seemed like a typical fourth quarter to some extent. There's usually activity at the year's end, but nothing unusual stands out. We did note a slight increase in the home center channel, though we're uncertain about its sustainability. This was encouraging since it has been a challenge for us for several quarters. I recently met with our global sales team, and we've been analyzing data and discussions. Here in North America, there's a general expectation of a stable outlook for residential housing, without significant changes. As I mentioned in my opening remarks, affordability is holding us back a bit. On the commercial side, the team is quite optimistic about opportunities across the country, particularly in multifamily projects and some infrastructure developments. Most of our salespeople feel positive about the commercial sector, which involves more expensive, higher-margin products, which is a good sign. Additionally, discussions with paint manufacturers reveal some optimism regarding residential repainting, which would be beneficial for us. Home turnover has been low in recent years, but renewed activity could improve sentiment regarding residential repainting. We also have new products launching that the team is excited about. Overall, we feel slightly more optimistic about contractors this year compared to last year.

Yes. The only additional point I want to make is regarding a number we all keep an eye on. Currently, mortgage rates are approximately 6.10%, which I believe is the lowest we've observed in this cycle over several years, dating back to Q4 of 2023. Rates reached a peak of 7.8% to 7.9%. While we’re not quite at the 5% range we aspire to see, we are getting closer. Considering the pent-up demand Mark mentioned, it may not be seen as a definitive green shoot, but it certainly has the potential to be a very positive development as we move into spring.

And then on the pricing side of things, what is the price assumption embedded in that low single-digit? In other words, is there a volume growth assumption in that low single-digit organic growth number? Also, could you just remind us when the pricing was implemented by segment? I know some of it was in that late third quarter time frame? Is there any that is coming in to start this year?

Yes. I think we're hoping to realize about 1% to 1.5% on the pricing front this year. Of course, it's sort of mix-dependent and timing-dependent. And then on the pricing rollouts, we did accelerate some of the 2026 price adjustments in the third and fourth quarter of 2025. So there haven't been a lot of price changes in Graco here in 2026. The timing of some of our larger customers and their price increases is more on a midyear basis. We did see some benefit from those increases that we did in mid-2025, and we expect to be able to implement those kinds of increases throughout 2026 as part of our normal cadence.

Yes. So I would just especially here in North America, by midyear, we hope to have price adjustments made for key channel partners and across all the legacy product families.

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

Maybe just starting out at a high level, could you just update us on your One Graco initiative, and how we should think about any benefit to sales or margin performance for this year?

Yes. One of the things I would point to is the inventory reductions that we've been seeing in our factories as a result of One Graco are pretty significant once we put all the operations under one leadership team. We identified areas where we could make changes, consolidate different facilities and do a better job of managing inventory than we've ever done as a company. I think, as a company, we did drive quite a bit of efficiencies resulting in cost savings. The first year of a reorganization will have some growing pains, but I think that we've worked through any of the internal issues that we've had with sales and marketing teams. As we go into 2026, these teams are fired up and ready to go. Salespeople now have access to multiple product lines, which gives them a lot more to talk about with customers. It's hard to put a dollar value on the revenue impact in 2025 of the initiatives of One Graco, but we all feel very strongly this was the right thing to do and should provide us some tailwind in 2026 and beyond.

Do you have a cost-saving number for 2026?

Well, because we rolled it out right at the end of last year and we hit the ground running in 2025, the full year benefit of One Graco was around $15 million. There's no ongoing restructuring costs that we're taking out related to One Graco. But we're always watching expenses and managing things as we do.

Got it. Appreciate that. I think last quarter, you talked about orders coming in at low single digits. Just curious how orders performed into year-end and then so far in January.

Yes. I think we factored all that into the guide for 2026. What we've seen so far is early days. We're just getting through January here. We're not concerned at all about where the guide is in relation to the order rates that we're seeing from our business units.

Our next question comes from Bryan Blair with Oppenheimer.

I was wondering if we could level set a little more on the upfront licensing agreements that your team has won. You're very clear in that they're non-competitive customers or applications. Can you provide insight into the markets or applications where you're winning outside of Graco's exposure?

Yes. I've been reluctant to share specifics on customers without getting their clarification that it's okay. I would just mention that we're licensing the technology to motor manufacturers as well as some OEMs. With respect to the motor manufacturers, it's limited in terms of the scope of the motors that they're actually putting ETM technology into. But once they're in, they can go into multiple different applications, anything from the process industries to the agricultural industry to robotics in some cases, where they want a small compact motor that fits better than what they currently have available today. It's really up to them to make sure that once it's introduced, they launch it to their customers. With respect to specific OEMs, I cannot disclose the names. However, showing them a Graco product that has the motor functioning goes a long way toward building confidence with an OEM to redesign their product to include our motor technology, which saves energy and is quieter.

That certainly makes sense. Your team drove solid inorganic growth in '25, and the messaging remains favorable there. You obviously have abundant dry powder. I was curious if you could offer any finer points on the overall size or scale of your funnel composition or pipeline actionability? What, if anything, has changed on those fronts over the recent past?

I think what's changed is our confidence in being able to identify strategic companies that make sense for Graco. We've been encouraged with the handful of acquisitions we've done recently, which have all been well-aligned for us. There's momentum within Graco building around M&A, and of course, we're going to stay disciplined. The most important element of any deal is to create shareholder value with mutual benefits for both sides. We have well over 100 names in our pipeline at any given point. Some are actionable at different levels, and some are out there quite a ways. There are opportunities that will come along, and to the extent that it makes sense for us to be active and purchase them, we'll be ready to go.

Our next question comes from Jeff Hammond of KeyBanc Capital Markets.

Just back on the home center, as you talk to those customers, did you get the sense that inventories got too low, or they're getting ahead of a price increase, or if underlying demand is actually getting better? Please provide a little more color on that.

Yes. The foot traffic is still pretty light there, so I don't think they've seen a big uptick in foot traffic. It may have been some channel activity where they felt the need to get their inventories in better shape. We didn't launch any new products that impacted our business significantly. It's a nice dynamic, one we haven't seen for a while. I don't have much/ Unfortunately, I don’t have a lot of color to provide that would give you any more insight than what you might get if you spoke with them.

I would underline Mark's last point; it was a meaningful bounce in business but follows three really difficult years. So I would be cautious about concluding that it suggests a major change. The people in the channel are good merchandisers, and when they order products, they usually know their needs.

Okay, great. I think you indicated after '24, a lot of our big capital projects are gone, but I think in CapEx, you have a tick uptick. Could you just talk about what is included in the growth capital plans in 2026 to drive that?

Well, in addition to our maintenance CapEx, we're going to be starting in the next couple of months the construction of our new corporate headquarters building in the French Lake campus, where we already have two existing structures. I think that the planned number for that is about $50 million, and most of that will be spent in '26.

Yes. Additionally, we'll be vacating our campus here in Northeast Minneapolis, which we will sell, and that will offset that, but we haven't factored that into the numbers we've given you. We will disclose that if and when it happens, but it will be a noticeable reduction in the overall CapEx spend when we exit this facility.

Our next question comes from Matt Summerville of D.A. Davidson.

I was hoping you could do a little bit of an end market overview in the industrial business, discussing what you're seeing from your larger end market exposures and then maybe contrast that across the three regions? I have a follow-up.

Okay. Well, I’ll take this one. On the positive side, we have seen steady activity in the automotive space, both with EVs and legacy companies in both the quarter and for the full year. Our dealer service market, think of lubrication equipment, remains strong for the full year and had another positive quarter. Despite some lumpiness in our semiconductor space, especially here in North America around the timing of projects, the business showed some firmness in the Asia region. In our Process Equipment segment, some of our channel partners, especially some of the MRO companies, have called out good performance in the food and beverage space. Mark already touched on the bounce we've seen in home center, and I would add the foam insulation to that, but also it's the same thing off a very low level compared to where we were a few years ago. On the flat or downside side, the Tier 1 automotive has been a mixed picture for us and that's typically a steady business. With some ups and downs, mining has been soft, and that's one of the largest end user markets for our automatic and industrial lubrication equipment, and Asia is, of course, a big market for mining. Solar CapEx was down, although one of our sales executives just returned from Asia, and he reports that the activity declined in the prior quarter. Outside of China, the Asian manufacturers are seeing panel volume increases, which probably bodes well for us in the future. Additionally, in North America, the construction-related industrial market, furniture, cabinetry, white goods, window and door are depressed. To round this out, our protective coatings business was a little softer than it had been earlier in the year. We did see some project order decline or less project activity in the Middle East where the oil and gas infrastructure drives spending for that equipment.

Great. Could you provide an update on your actionability of your M&A pipeline here looking over the course of 2026 and whether or not you're optimistic that we see a couple of additional deals coming together?

Yes, I'd characterize it as pretty good. You never know how things will shake out. We are looking at a number of opportunities as we enter the first quarter. As I said before, what has changed for us is our confidence in pursuing companies that are strategic and make sense. There’s momentum within our organization for M&A. Of course, we'll stay disciplined as we look at future deals to ensure we add value to those companies and they can add value to us. It's a good picture at this point.

Our next question comes from Andrew Buscaglia with BNP Paribas.

A couple more on the modeling front. In industrial, it seems like you're not quite turning the corner, but maybe the North America and Europe data suggests that things are getting a little bit better. How about on the margin front? You had that mix headwind. I'm wondering how long if that continues into next year? How do you see margins playing out with those dynamics?

Yes. I think that the quarters are challenging because you do get some lumpy projects in there. In this quarter, we did have that with our powder finishing business systems. A couple of big projects that shipped out skewed the results. The margins in industrial are fantastic. I have no concerns whatsoever in terms of any kind of deterioration. If we can get volume rolling through the factories beyond the kind of low single-digit, there's plenty of upside. You've seen the incremental margins this year. A lot of that was due to One Graco but also decent margin performance on volumes that have been kind of flattish for a while. I feel good about our profitability side in that business. It's really a volume story going forward.

Okay. Similar question on the expansion markets. You guys have done a great job getting those margins up in a short amount of time. Are there higher-margin subsegments or subsectors that if they were to return to growth could be influential on those margins moving forward?

Yes. All businesses within there are nice profitable businesses, so we don't really have any weak areas. For sure, the semiconductor business has really high margins, as does our high-pressure business and our QED business. The motor initiative we have going on adds to the top of it. It's similar to industrial in that we've got the infrastructure in place, the teams, and when the volumes are higher than they are today, you'll love the incremental margins.

Our next question comes from the line of Brad Hewitt of Wolfe Research.

I'm curious how backlog trended in the quarter. It looks like you got the backlog conversion in the Gamma business as expected this quarter, but any additional color would be helpful.

Yes. We did a great job in manufacturing in Q4. I give credit to One Graco and that team being organized in ensuring we get products out to customers who wanted them by the end of the year. As we enter 2026, I think backlogs are at a decent level. We're pushing product out as quickly as we can. The powder business that you referenced is part of our backlog and can be lumpy at times, especially in our SAT business. These can be projects that go six months or more, but we have more visibility on the powder side than any other. We've factored all that into our organic outlook for the full year, which I think is very achievable.

Great. Could you provide some clarity on the phasing of organic growth throughout the year in 2026? Would you expect the lowest growth in Q1? I know Q2 and Q3, you have easier comps, so could we be looking at maybe mid-single-digit growth in Q2, Q3? Any thoughts on the phasing?

I would say, Brad, that our seasonality will probably hold this year. There's nothing we see changing. Typically, if we perform well on the contractor side, we should have a stronger second and third quarter and typically have project completion realization in the fourth quarter, similar to this year.

Our next question comes from Walter Liptak of Seaport Research.

I wanted to ask about, in 2025, you had that $100 million of incremental revenue but in the profit walk, it was like $8 million in profits because of some extra costs. I wondered about the delta there for 2026. How much revenue is going to come through with a normalized profit in 2026, if that makes sense?

I would say, as Mark referenced in his script, from a revenue standpoint, if we get full year revenue from all of our acquisitions, it brings us to about $190 million of revenue related to what we would consider our acquisitions, which would be COROB, Color Service, and Radia. From a margin standpoint, when we factor in all of our purchase accounting, I believe what you're going to see is pretty typical from these earnings rates we saw this year, at least as a percentage of the earnings.

Yes, I think the COROB acquisition is fully banked at this point in terms of the numbers. We all got a full year in, so it's not going to have a meaningful impact on contracts, and it was obviously the biggest acquisition we did. Radia margins are really good, and it's not going to be materially different than the overall contractor margin rate. Color Service, which is part of the powder business, rolls up under industrial, and again is sort of in line with our profitability there.

Okay, great. With the start of the year, maybe we could try a fun one. If we roll everything up and look at the year for positives and negatives, what I'm hearing from you is that things that could go well could be lower mortgage rates helping the residential market or maybe some of these factory CapEx projects moving? On the negative side, I would ask if tariffs are done for downside impact. I guess, I wonder if you could just run through your thoughts on what could go well and what could be a problem this year.

Well, the world is a complicated, unpredictable place. When we look at things that could go well, yes, I think you touched on a couple of them that are highly relevant, including the fact that we are launching new products in our most important markets. Manufacturers and contractor end users are looking ahead based on ROIs, and we believe that our equipment generates. On the messy side, we cannot predict the trade environment in 2026. Tariffs were a headwind for us, and we made mid-course corrections with price adjustments. We've demonstrated that we try to be nimble. If there are armed conflicts in the Middle East, that could have unforeseen repercussions. But over our 100 years, the world has often been a turbulent, unpredictable place.

Yes. We're covered well on the tariff front. We did our pricing actions. As we head into '26, we don't expect any headwinds from tariffs, as they are already baked into the numbers. As David said, none of us will know what will happen. We've demonstrated our willingness to adapt and do what we need to drive value for our investors and shareholders. Graco is well-positioned to navigate these uncertain markets effectively. Okay. Well, great. Thanks, everybody, for participating. We're excited to wrap up '25 and get on to 2026. It has been a fantastic year for Graco. It is our 100-year anniversary. Not many companies make it to 100 years, and we are proud of that achievement and our employees for ensuring we deliver quality products every single day. Thank you so much. We're going to sign off. Have a great rest of the day.

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