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..

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. I'll now turn the call over to Mark for further segment and regional commentary..

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 -- is 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.

That concludes our prepared remarks. Operator, we're ready for questions..

[Operator Instructions] Our first question is going to come from the line of Deane Dray with RBC Capital Markets. Please proceed..

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 it's kind of 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 2 camps 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, 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 hanging 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 as the North American market seems decent. Europe, okay.

And Asia-Pacific market has been really challenging for us..

That's good.

And U.S.?.

Yes. I mean, North America really is primarily 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..

And then just as a follow-up, Mark, you and I talked about this at our RBC Industrials Conference a few weeks ago.

Just the genesis of the resegmentation, the why now? How did you land in these 4 categories? And from -- is it still too early to talk about where and how the growth can be -- you'd see some sort of improvement? And just where -- and how would you be measuring those benefits?.

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 as 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..

[Operator Instructions] Our next question is going to come from the line of Mike Halloran with Baird. Your line is open. Please go ahead..

So a couple of questions. Just kind of following up on that last. At the end of the day, this seems more -- the restructuring you're doing here seems more like a driver for growth. In the past, you've talked about kind of the 5.5% kind of growth, maybe adding 5% kind of growth last cycle, being able to maybe add an incremental point of growth to that.

Is that really what the goal here is from a loose quantification? And then secondarily, is there a margin benefit you think you're going to drive from this as well with how you're moving things around 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 sandboxes that we might potentially play in as a company.

I really felt like we didn't have anybody at Graco that was focused on that. And I think that there are other areas outside of our current businesses that we can play in 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 put points on the board from an M&A standpoint.

Our divisions are still going to look at the stuff that they've always looked at, and our pipelines look pretty good there. But having that group looking at those things, I think, 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 guys 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..

Makes sense. And then kind of a twofold question here. First, obviously, we're late in the year here. So your guidance, you can kind of get some implied growth for the fourth quarter here, but it's a pretty wide range.

So the first question is basically, are we talking about a fourth quarter growth rate that is similar to this low single-digit guide for the full year? And then related, could you just put -- what's going on with the backlog and the orders in context and help us understand how that's flowing through things as it sits here?.

Yes. I think the guide is pretty consistent with what we've had now for a couple of quarters, I guess, where we're targeting this low single-digit constant currency revenue decline. So you guys can do the math on that.

But I think it would play out that that's likely what you're going to see in Q4, what we saw in Q3 and kind of for the year-to-date number as well. We have experienced quite a bit of backlog reduction. I remember in our backlog was $450 million, now it's $230 million.

So we're at the point now where we're back to, I call it, a normal business for Graco. Mostly book and ship with a couple of exceptions, 1 being our Powder Coating business, where we do have some backlog there. And then our -- some of our longer-term projects in the Industrial side as well.

But in terms of where we're at on backlog, I think we're at a point now where you should expect to see this number kind of hang in there going forward, barring any kind of crazy stuff like we had a couple of years ago where everybody was placing all kinds of orders. So that does create some headwind for us.

As you know, I'm sure, when you look at '23 versus '24, that backlog came down in '23. It's come down in '24, but not quite as much. As we look at '24 into '25, if we're assuming that we're at normal levels, we won't have this built-in reduction in backlog. So we factor all that into the guide that we give you guys.

We're comfortable with it at this point, and we hope that we're able to hit it by the end of the year. And then as we get to '25, obviously, we'll update our outlook at that point..

[Operator Instructions] The next question is going to come from the line of 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 -- this is David. I think the starting point is certainly the effectiveness we've had in realized pricing really now for 2 full years. Because we did our interim adjustment, I think, in the middle of '22. And one of the consistencies in our favorable price/cost relationship since has been what we've achieved in pricing.

Admittedly, the increases we saw in the second half of '22 and all of '23 were a bit more dramatic than what we're seeing today. But it's been consistent and it's been consistent across all business units and regions. And so I think pricing has been the hero. In terms of the cost structure -- and Chris can correct me if I am straying a bit.

Input costs have leveled out, but they certainly have not declined to levels that we saw in any meaningful way in periods prior to 2021 and earlier periods. So we are working with a higher cost structure, both for input costs, labor and energy and other things, but we're covering those.

I think a maybe more recent development that has had impact on us is some less ability to absorb all the factory overhead because of the, call it, the decline in unit volumes that we touched on in our opening comments. But with that said, the overall price/cost has remained positive..

Yes, I'm pretty happy with the factory performance. Given the fact that we've had volume declines 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. I think the growth in orders over the last 6 weeks, again, pretty short time period have been broad-based with the exception of Asia, which is still challenging to us.

So -- and we want to just point out that it was mostly in the Industrial and Process segments, which have been the ones that have been really creamed this year when it comes to the declines that we've seen in that particular region. So I wouldn't read too much into it, other than we thought it was an interesting data point to share with you.

We want to be as transparent as possible, and it will hopefully give you a little bit more confidence in our year -- full year revenue guide of down low-single digits for the full year.

When it comes to the North America Industrial business, we did -- we were able to recognize some larger project activity that was previously booked after a customer signed off, particularly in the powder industry. And so that really did help drive the growth.

If you were to sort of strip that out, you would probably see something similar in North America Industrial, what we're seeing in Europe from a total demand standpoint, if that's helpful..

[Operator Instructions] Our next question is going to come from the line of 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 the only thing I would add is that as we've kind of rolled the year here a little bit, we have seen a little bit more weaker activity in our lubrication businesses, which are really nicely profitable. And so when I look at like Q1, Q2 versus Q3, those -- the revenues there have come down a little bit sequentially through those quarters.

The other big one, obviously, is the semiconductor business, which is way down from a year ago, but the bookings are starting to pick up there as anticipated with the pickup that everyone's predicting for 2025..

And I should leave well enough alone, but I'll add that the 2 points Mark mentioned also ties once again into the whole Asia Pacific arena, where semiconductor is -- there's a lot of activity in region, and the ongoing softness there has been -- it's no secret, pretty dramatic.

And in the lubrication space, the mining markets, not just in China but even in the Southeast Asia, are a significant portion of that business. So when those markets are soft, and say, especially in region, you see that flow through to 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 will just generically call them to maybe bring Corob's presence to the market or lift their presence in the local market?.

Yes. I appreciate the question. Given that we haven't closed the deal, I'm a little bit limited in what I can say -- what I will say. Here's what I like about the business. Number one, we understand the technologies. It's metering, it's mixing. It's tinting, it's stuff that Graco knows how to do pretty well. We also do like the overlap on the customers.

Some of their big customers are Graco customers. I think their presence outside of North America is much bigger than it is in North America.

And we are hopeful that they can help us out in the Asia-Pacific region with some of the contacts they have like Asian Paints, and that we can potentially leverage our good relationships at the home center customers that we have and the larger professional channel customers that we have as well.

So I think there are some revenue synergies there that we're hopeful to get. In terms of their growth historically, it's kind of been in that low to mid-single digits. So it's not too dissimilar from what Graco has in terms of organic growth through a cycle. So I think that we feel pretty good about that.

Lastly, what I'll say is that they have really good production in Italy, and they also have a footprint in India, production-wise, that we like. And that is an area that we've thought about expanding into for Graco to expand our presence in India from a production standpoint given the activity that's happening there.

So this gives us a footprint immediately to do that and to experiment with it. It's a little bit lower risk than if we had plans to flag somewhere and did that on our own. So I think we're excited about that as well..

[Operator Instructions] Our next question is going to come from the line of Jeff Hammond with KeyBanc Capital Markets. Your lines is open. 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 antidote, though. But just in -- 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..

And then just -- I appreciate the color on the One Graco and the new segment.

But if you -- if we look maybe more technical on the segment changes, can you just walk through -- it sounds like Contractor is unchanged, and then we're moving a business or 2 from -- for Process and the Industrial? Is it that simple?.

I think the way that you look at it, the way that -- today, Jeff, we have our Industrial division and our Powder division. They'll still stay in the Industrial group. We'll move our Lubrication and a portion of our Process division into that Industrial group.

And the remaining businesses will break out and create the Expansion Markets area, which is the semiconductor, the high-pressure valves and the 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 a responsibility beyond just looking at things that are really closely adjacent to us..

[Operator Instructions] Our next question is going to come from the line of Andrew Buscaglia with BNP Paribas. Your line is open. Please go ahead..

Yes. So I wanted to touch on -- within Contractor, you have these new products, new product cycle rolling out. You haven't seen much acceptance from it yet, it seems, but you're saying there's more products coming out in Q4.

Is that informing your guidance that you guys are maintaining your guidance? Do you see anything in your orders that you see greater 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's still flashing kind of red, yellow signs.

And 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 [ enable before ] 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..

[Operator Instructions] Our next question is going to come from the line of Walter Liptak with Seaport Research. Your line is open. Please go ahead..

I wanted to ask a follow-up on China. You talked about the Industrial and Process having some headwinds and the $10 million of -- some falloff in Industrial and Process.

So I guess the question is, what are we thinking about like with their quoting and their funnels, what does it take to get the China -- are we looking for macro things like the government stimulus that's going on or how should we think about sort of those near-term outlook?.

Yes. I think there's been over -- a little bit of overcapacity built over there in the last couple of years. So I think there's some catch-up that's going on. Because if I look at what's happening in our end markets, it's really kind of across the board in most of the big ones. It's not like it's limited to any 1 particular thing.

If you look at semiconductor, they're down, automotive is down, battery is down, solar is down. So I do feel like over the last few years, they've built a lot of capacity.

What's going to change, hopefully, at some point, we get to an equilibrium level and then business conditions are a little bit better for us in China than what we've had over the last 12 months or so. I don't think that the stimulus is going to have a meaningful impact in the short term.

We'll see what happens, but we certainly haven't seen it so far 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?.

Well, I would say that the comment about overcapacity is right. And here's where you have to go from, I think, generalizing about the economy to specific markets. As an old industrial guy, I'm hopeful that there's still going to be lots of interesting investments.

I believe this in battery and electric vehicle and some of the traditional markets where we've been. There are certain markets, for example, the construction sector, that would suggest there could be a downturn that could go on for quite a while.

If you believe some of the reports that have come out in recent months where you have millions of -- you have millions of units that have been constructed that are empty.

And I think that's going to take more than a liquidity confidence -- a liquidity program to drive the kind of confidence that our sorts of end users are going to need to make big investments in that space..

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 up deploying our capital. But over time, we're hopeful that 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 business?.

We like what we got. But obviously, our team will be looking at all different opportunities and what makes sense. And right now, there's 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..