Graco Inc (GGG) 2003 Q4 法說會逐字稿

Good morning, and (technical difficulty) quarter and year-end 2003 earnings conference call for Graco, Inc. If you wish to access the replay for this call, you may do so by dialing 800-428-6051 within the United States or Canada. The dial-in number for international callers is 973-709-2089. The conference ID number is 329468. The replay will be available through January 28th, 2004.

At this time, I would like to inform you that this conference is being recorded, and that all participants are in a listen-only mode. At the request of the company, we will open up the conference for questions and answers after the presentation.

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 Exhibit 99 to the company's 2002 annual report on Form 10-K and its most recent 10-Q.

I will now turn the conference over to Mark Sheahan, Vice President and Treasurer. Please go ahead, sir.

Thank you, Charlene. Good morning, everyone. Welcome to our fourth-quarter and year-end conference call. My name is Mark Sheahan, and with me on the phone is Dave Roberts, our President and Chief Executive Officer. I would like to start off by just quickly going through some of the highlights of the results that we published yesterday afternoon. And then we will open up the call for your questions.

On an overall basis, we were pleased to report another net sales increase in the fourth quarter. The 12 percent growth in the quarter represents our seventh consecutive quarter of sales growth. And in this quarter, all divisions and regions reported sales increases from last year. The increases in sales versus last year's fourth quarter were really driven by growth in our industrial automotive segment, which was up 18 percent; growth in the contractor equipment segment -- sales were up 7 percent; growth in Asia-Pacific -- sales were up 18 percent; and the favorable currency translation rates, which added about 5 percentage points to the sales growth in this quarter.

With regard to exchange, again, the weaker dollar versus the euro is the primary driver for the currency impact that we're seeing on the P&L this year. For 2003, the average euro-to-dollar exchange rate was $1.13 cents, versus in 2002, where that same euro was worth 94 cents. So that represents about a 20 percent weakening of the U.S. dollar. If you look specifically at the fourth quarter, the average euro-to-U.S.-dollar exchange rate was $1.19. And again, that compares to the fourth quarter of 2002, where the euro was worth about $1 -- so again, about a 19 or 20 percent weakening of the U.S. dollar in the fourth quarter. For the fourth quarter, the currencies added about 5 cents to diluted earnings per share, and for the full year, they added about 18 cents.

For the fourth quarter, earnings per share was up 24 percent, which reflected the combination of the 18 (technical difficulty) percent increase in net earnings as well as the reduction of shares outstanding from share repurchases that were conducted during the year. Year to date, earnings per share is up 18 percent on a revenue increase of 10 percent.

If we look quickly at the segments -- I'll start with industrial automotive. For the quarter, their sales were $64.4 million, which were up 18 percent versus last year's fourth quarter. If you were to take out the favorable impact of the currency, the sales were still up a very healthy 10 percent. And if you were to subtract out the impact of the Sharpe acquisition, the sales were up 6 percent.

Volume growth came from all regions, except for Europe. But Europe was up after giving effect to the favorable currency environment. In the Americas, sales were up 25 percent. This represented nice growth in base business, as well as the impact of the Sharpe acquisition and some currency. If you were to factor out the Sharpe acquisition and the currency, the sales in the Americas were up 14 percent.

If you look at Europe, their volume was down 9 percent in industrial automotive, but their reported sales were up 5 percent due to the strength of the euro. In Asia-Pacific, sales remained strong, with sales up 19 percent, or 14 percent when measured at constant exchange rates.

Profitability in industrial automotive strengthened in the fourth quarter. Operating margins were at 30.6 percent versus 27.1 percent last year. In addition, operating profit dollars grew 3 percent (ph) versus last year's fourth quarter. And for the year, the operating margins in industrial automotive was 28.4 percent versus 26.6 percent last year. Year to date, industrial operating profit dollars were up 22 percent on a revenue increase of 13 percent.

To summarize industrial automotive, the good news is we started to see underlying growth in the Americas, where, again, sales were up 25 percent from last year's fourth quarter, and at constant exchange rates and factoring out Sharpe, the sales were up 14 percent. Underlying demand in the Europe region remains weak, but currencies are helping. As we head into the first half of 2004, the current spot rate of approximately $1.27 is favorable to what was experienced in the first half of last year, where the euro averaged $1.10. Sharpe is contributing to sales. It added about 2.3 million in the fourth quarter and 7 million for the year. And the Asia-Pacific region continues to be good, but as we head into 2004, we expect growth, but probably not at the rates that we saw in 2003, as the comparisons will get more difficult for that business just because of the strength that we had in 2003.

Turning next to the contractor segment -- when compared to the fourth quarter of last year, worldwide contractor equipment sales of 59.4 million were up 7 percent. If you look at the Americas (technical difficulty), sales were up 4 percent, with growth in the home center channel and a decline in the paint store channel. Asia-Pacific was up 11 percent -- mostly volume related. And Europe was up 27 percent, resulting both from underlying growth as well as a strong Euro.

The operating profit margin in the fourth quarter for the contractor business was about 19 percent, which was really flat versus last year's fourth quarter. Operating profit dollars grew 10 percent versus last year's fourth quarter. On a year-to-date basis, contractor's operating profit dollars are up 11 percent on an 8 percent increase in sales.

To summarize contractor -- for the year, sales were higher in both the paint store channel and the home center channel in North America. Europe is benefiting from both underlying growth as we gain market share as well as a strong euro. And the Asia-Pacific region is growing as we continue to build our market position in airless spray equipment to serve these growing economies.

Turning next to lubrication -- their sales were $11.5 million in the fourth quarter, which is up 10 percent from last year, which was a particularly weak quarter for that business. I believe the sales in the fourth quarter of last year were down 13 percent. (technical difficulty)

The increase in lube was mostly due to stronger sales in the Americas versus last year's fourth quarter. And the operating margins in that business were at 23.6 percent versus 20.8 percent last year. For the full year, the operating margin in lubrication was at 21 percent, which is flat with last year. In 2003, lubrication operating profit dollars are up 3 percent on a 5 percent sales increase.

Looking next at the gross profit line -- the gross profit margin expressed as a percentage of sales was 53.6 percent for the quarter versus 51.8 percent for the same period last year. Exchange rates, product manufacturing cost improvements were the primary drivers for the higher gross margin rate in both periods. Exchange has a favorable impact on our gross margins, since changes in exchange rates have less impact on our cost than on our sales, because about 25 percent of our sales are in non-U.S.-dollars, where only about 5 percent of our cost of goods sold are in non-U.S.-dollars.

Looking at the expense line -- operating expenses -- selling, market, and distribution and general and administrative expenses were higher in the fourth quarter of 2003 versus the fourth quarter of 2002. Overall, these expenses were up $5.5 million, with increases in a number of areas. Some of the driving factors for the increase include -- exchange rates; payroll-related expenses, including some severance; the addition of the Sharpe expenses to the P&L in 2003; a contribution to the Graco Foundation that was made in the fourth quarter of 2003; and warranty expenses.

The tax rate for the year came in at 32.2 percent, which is virtually the same as it was last year, which is 32.3 percent.

Some other items that I'll mention -- on the cash flow statement, the cash flow from operations was strong this year at $109.8 million versus $95.7 million last year. Some of the significant uses of cash for the company this year include -- share repurchases, a pension contribution, property plant and equipment additions, dividends, the Sharpe acquisition, and retirement of debt.

Accounts receivable are higher than a year ago at $98.9 million versus $93.6 million. This increase is really due to the fact that sales are higher, as well as the impact of Sharpe and currency. Inventories are slightly lower than last year at year end, which is very good performance, considering the additional sales and the addition of Sharpe into the balance sheet.

And then finally, to summarize, we believe Graco had a great fourth quarter -- 12 percent increase in sales, 18 percent increase in net earnings, and a 24 percent increase in earnings per share. As we head into the first half of this year, we do have some tailwind with currency, as I mentioned earlier. And I believe that that runs at about a 15 percent difference between what the currency is at today versus our average rate for the first half of 2002.

With that, I will ask Charlene to open up the line for your questions.

(OPERATOR INSTRUCTIONS) John Franzreb, Sidoti and Company.

Good morning, gentleman. Regarding the selling and marketing expenses that are up in the quarter -- some of them seem to be -- they will be ongoing, but some of them seem to be more of one-time in nature. Could you kind of break out how much was contributed to the Graco Foundation and severance, and I guess the warranty expenses -- you had that, actually, last quarter, and you have it again. Could you kind of give me a rough estimate of how much of an impact those three items had?

John, warranty was up about $4 million. The issue there is that primarily in our contractor business, we had a warranty program called G3 (ph). And basically what that was was a warranty plan that would cover what we call the sprayer bumper-to-bumper for two years -- and frankly, became more expensive for us, because units were being returned more frequently than we had anticipated when we introduced the program.

We introduced a new plan on January 1st to the contractor group, frankly, with great reception, which allows the purchaser of the unit to now actually buy at a very reduced rate what we call the lower portion of the pump, which is really the worn (ph) part that will give them additional use or life of this sprayer without having to take it back into a repair facility. And we think it will reduce our overall warranty expense.

The severance that we talked about was approximately $2 million. What we did -- we closed our Plymouth operation. Plymouth, Michigan -- we had a large demo lab (ph) there, primarily for automotive customers. And we moved that into the Minneapolis operation. And we also had severance in both Europe and Japan. Frankly, I'm still not happy with the performance in Japan, and we made some movements there. And then in Europe, what we did is take some people out of territories that were no longer growing, and put them into areas that were actually growing. We had some severance associated with that.

We also had some IS spending, John. We've got a couple of programs that are in the process of being implemented. There's an Oracle pilot (ph) that we're running with the Sharpe acquisition. And we expensed that primarily because it's a pilot. And then there's a new warehouse automation system that we're bringing in. And there were additional IS expenses there.

The foundation itself -- I think it was $600,000 in the quarter. Total contribution for the year, I believe, was 1.7 million.

The new information systems -- when will they be put in place? And do you anticipate any disruptions because of putting them in place?

No, John, we really don't. The reason we're running a pilot with Oracle at Sharpe is primarily because it's a small operation. And it is just a pilot, letting us understand the system itself, and being able to eventually -- with the idea of eventually rolling it out to the entire company. It's going to be implemented at the end of April. And that's when we close the Santa Fe Springs facility and move it into Sioux Falls. We're actually running some live tests right now. And frankly, it's going quite well. So we don't see any disruption of the operations. And if we did have, it would be on a very small scale, because it is just with the Sharpe acquisition, or the Sharpe product line.

The warehouse automation system -- that will be coming into our Minneapolis River (technical difficulty) facility sometime at the end of the first quarter. And then based on the success of that, we'll also be rolling it out into our Rogers facility up in Rogers, Minnesota -- you know, based on the success we have in Minneapolis. Frankly, we don't -- we're taking our time, making sure it's done right rather than rolling it out and having problems with it.

Great -- that's a great answer, Dave. One last question, and then I'll go back into queue. The gross margin -- how much was it impacted by new products?

Geez, Mark, do have that number?

I don't have the specific number. It was favorable, but we don't have a number.

Ned Armstrong, Freedman Billings.

Good morning, gentleman. You mention in your press release some new products that are in the pipeline. Can you talk a little bit about that as far as the markets they're aimed at, and whether they're extensions of existing products, or actually brand new products for new applications?

They're primarily extensions of existing product lines. As probably everybody on the phone knows, is what we do is -- every three years, we reintroduce an existing product line that we have in our contractor business. So many of the products that we introduced on January 1st were products that actually are an extension or a replacement of existing products. And then we do have a couple of new products that are coming out in the industrial business. They're primarily finishing products -- what we call the P-Mix Lite (ph) and -- or LP -- and products that are positioned at a different price point than what our existing products are.

And then there's basically the reintroduction of Matrix in lubrication. We had some -- as you all know, we withdrew that product from the marketplace July 1st. We've really taken our time to make sure that it's right. It was a radiofrequency issue that we had. We are in tests today in the labs in Graco. And we look to be rolling that out sometime -- probably for testing later in the first quarter, with the idea that we'd reintroduce probably at the end of the second quarter of this year.

With regard to the products that are at a different pricing point -- would those be going to basically the same customer, just buying for different use, or (multiple speakers) wanting higher quality stuff? Or does it open up a new niche for you?

It could be a combination. What it is is basically a two-component unit for two-component materials. What it really does is give us the opportunity to go look at people who really couldn't afford one of the higher-priced units. So there could be some incremental business for it. But also, it could be used in the same facility where they have smaller requirements -- or quantity requirements are smaller than what they are with the existing unit. So could be both.

Charlie Brady, Hibernia Southwest Capital.

Hi, thanks. Good morning, guys. Could you just -- on the Sharpe acquisition, when you were talking about some of the expenses being run through, does that imply -- where is sort of the operating performance of that company? Is it sort of on the up-tick, and you're trying to get it up to more of a corporate levels, and it's still slightly below -- is my first question.

And then I guess, also, if you could talk about sort of what you're seeing on the acquisition pipelines -- prices for deals being paid out there? I know you guys are looking around, obviously -- sort of how that market looks these days?

Sure. First of all on Sharpe -- yes, it is on a up-tick. And we announced -- I think it was September -- that we were closing the facility in Santa Fe Springs, California, and moving into our Sioux Falls facility. That will happen by the end of April. Once that moved in, we'll see margins improve in the Sharpe product lines more comparable to what we're getting on our existing products. So we will see some improvement from that standpoint.

And then obviously, the idea is to get greater quantities sold, primarily because Sharpe was sold mainly in the U.S. -- and the idea that we could roll it out not only in North America, but also the rest of the world. So there -- you should see some upside on Sharpe.

As far as the acquisitions themselves -- I know there's a lot of conversation about acquisitions. Frankly, we still haven't seen a number of businesses coming available that -- where we can compare prices. I haven't seen anything that would indicate that prices are actually going up on acquisitions, you know, from what we've seen so far. It certainly is our intent to make one to two acquisitions a year. And we still have that objective. But I really can't comment on what's happening with prices at this point.

Okay. And could you just comment about -- we talked about the home center versus paint center -- both of them up, but stronger growth out of the home center? (multiple speakers)

Yes, what happened -- fourth quarter primarily -- if you recall in the third quarter, home center adjusted inventories. And what we really started to see in the fourth quarter was a rebalancing of the inventories they had in those facilities. Actually, home center was up, where our paint channel was down about 5 percent. The reason the paint store channel was down is that we had a number of large orders that came in last year at this time that didn't materialize in '03. But, frankly, we don't see a reason that they shouldn't materialize sometime in '04.

So there's still a healthy environment out there. In fact, home center sales were up 31 percent in the fourth quarter. So a very strong quarter for us with paint store down. Paint store was up -- I think it was 3 percent for the year, and home center was about 10 percent for the year.

For the quarter, home center was up 30 -- what percent --?

I think it was 31 percent, yes.

Any progress you're making into Lowe's?

Well, we continue to talk to them. As we've said before, we're not going to do anything with any of the other home centers that would jeopardize our position with Home Depot. Home Depot is still the premier home center out there. And you know, we'll work with the other home centers. But not at anything that would negatively impact the home center business at Home Depot.

John Franzreb, Sidoti and Company.

Yes, two questions -- one, your capital expenditures in the year ahead -- you have a new facility building. Can you give us a sense of how much you're going to spend, and what's the progress on the facility?

Sure -- John, and this is strictly from memory -- I think our total cost for that facility is about $5 million. We started to move in there, in fact, last week. So it is nearly complete. We are moving the remainder of the people in this week and next. And we will be in a position where we're going to start demolishing the old facility that they were in. So that -- basically, all the capital expenditures for that facility are done. And people are moving in today.

And next year should be around 15 to 20 million range cap-ex.

Anything significant in that?

No.

And considering how much of your product is sold to the distributor channel, could you give us a sense of how much inventory the distributors are carrying? Do you feel like that there's room there for more salesman first quarter, considering how much strength you have -- especially in North America? (multiple speakers)

Yes, John, I think one of the good things that we have with our distributors -- and I think it's a relationship we've established with them over the years, in industrial, primarily -- is that, because we're as responsive as we are, they don't carry a lot of inventory. So there's not a tremendous amount of inventory that needs to be worked off in the channel prior to them placing orders for equipment. You know, it's one of the things that, frankly, Graco has prided itself on over the years, and will continue to pride itself -- is that turnaround that we provide our distributors.

Jeff Burke (ph), Robert W. Baird.

Good morning, guys; it's actually Mike Schneider calling. Just a point on the contractor division -- Europe gaining share, you mentioned that. Can you give us some sense -- because this is the first time I guess I've heard you admit that, and I've certainly suspected it for a while. Could you give us an update on exactly what strategies are in place over there? And is it primarily home centers that you're gaining share at?

No, actually it's in the paint store channel, Mike. And what's happening is that we actually are gaining share in Germany, which is, frankly, a surprise to us. But something we worked very hard. It's based on, again, delivery and product quality. We've done nothing with pricing that would lead anybody to believe that we're reducing prices in the marketplace. But we are starting to see some increases coming out of Germany.

The other areas that we're increasing market share are coming out of southern Europe -- Spain, Italy, Portugal, countries down that were primarily brush-and-roller businesses, or countries are now making the conversion to spray.

Okay. And going over to Asia and the contractor business -- again, just market expansion? Is that what (ph) it's up? And Mark, maybe you could give us the number it was up in local currency?

Yes, the contractor business in Asia -- it's really adding distribution channel and adding some salespeople. In terms of the actual numbers for contractor in Asia-Pacific -- for the year, it was up roughly 20 percent.

To add onto that, Mike, what's happening is that we're being as aggressive as we can be in creating that marketplace in Asia. We think that's certainly the next large frontier for us. And that -- we're doing things like adding distribution. We added the warehouse -- I think it was earlier last year, we added the warehouse, which would support our contract or business. And then we're now incrementally adding distribution and salespeople to support that distribution in China, primarily.

Okay, and when we got together recently, we had also talked about just the opportunity in the automotive space over in China, and in particular for the lube (ph) segment over in China as these countries gain an automotive presence -- could you give us an update on what's going on in Asia in the other two segments?

Well, certainly, industrial automotive continues to be strong in Asia. I don't have the numbers in front of me. But frankly, we've had some great success. And I think they're in the mid-20s as our growth.

Year to date, 20.

20 is what it is?

Yes.

Okay. And so the industrial automotive business continues to grow. And our focus is not just on automotive there, even though it has been, I guess, a nice surprise to us, the amount of equipment that we're selling into automotive. We've got our people focused on not only automotive, but all the other industrial companies that are buying equipment there.

In lubrication, we were actually up in lube in Asia-Pacific about 27 percent -- 25 without currency. That's really based on focus. Now that's off of a very small number. Obviously, we talked about the number of automobiles that people are going to own there. And I just picked up an article, Michael, that they talk about the largest expenditure in advertising expenses next year are going to be the oil companies advertising on TV in China about changing the oil in your car. So we see that as a positive for us. And hopefully, that business will continue to grow at the rate it has, or even slight -- greater rates.

And Mark, just some specifics on margins in '04 and the potential. The lube business has been off of its peak some 25 percent now for two years down around this 21 percent range. Any big swing factors in profitability in lube in '04?

Probably the biggest one is we hope to be able to avoid the Matrix-type event. And that I think was around $1 million of expenses, pretax, in '03. I think the team in lubrication is focused on improving their operating profitability in 2004. And I also think that there is some positive outlook on the top line in 2004 in terms of some of the expansion that Dave talked about into the Asia region, in particular. So I think the margins in lubrication -- you know, they should be better.

Michael, I agree with that, because if you look at two years ago in lube, we were investing heavily in the development of Matrix. We stubbed our toe with the problems we had this year -- or 2003, and frankly, I think we're feeling comfortable that those are behind us. And we should start to see some of the benefit now from it.

And just the Matrix warranty (ph) -- it sounds like it's probably about four or five months longer than we had talked about previously?

Well, you know, I'm being very conservative on that, primarily because we want to make sure it's right before we go out with it. We've had all of our customers stick with us through the times that we've had. And we want to make sure that we're introducing a product that is going to work. And we think we're very close to that. When I said at the end of the second quarter -- basically, what I am doing is hedging there, and making sure that we do have a product right.

And then switching back to the other two segments in margins -- first, the industrial automotive business. This is, obviously, one of the biggest swing factors for '04 for you guys if business picks up there. First, can you give us a sense of what the quarter looked like in terms of order progression, especially domestically? You said that business was up -- what, 20 -- or I'm sorry, 14 percent organically? Because this is where the leverage comes in '04.

There's no question, Mike. What we started to see in the beginning of the fourth quarter, that orders began to strengthen significantly -- and particularly in North America. And I think Mark talked about us being up over 25 percent in the quarter in North America over last year. Obviously, Sharpe added some of that and currency added some. But I think that number is 14 percent that we were up year over year in industrial, North America.

Frankly, we haven't seen any indication that would say that that's going slow at all for us. Orders look strong coming out of the year and into this year. I think we're certainly more optimistic than we have been in three years in the industrial automotive division.

And were there any big automotive domestic (multiple speakers) or --

No -- yes, the good thing about the orders was that it wasn't based on one or three very large orders. It seems to be a strengthening of demand across most of our markets.

So it wasn't one big woodworking customer, one big automotive customer (multiple speakers)

Right, exactly. They were nice size orders to a number of customers.

Where do you see the money being spent -- on what type of products in industrial?

Well, I think if you were to look in our businesses in each of the segments, I think protective coatings has been very strong. We introduced a new product there -- plus I think demand is driving additional expenditures in protective coatings.

The process business was strong. Finishing -- I guess the best thing to say is that finishing is relatively flat. Our sealants and adhesives business still isn't performing the way we'd like. And we've got some things going on in sealants and adhesives from a new product standpoint. But I think in all -- in three of the fourth segments, Mike, I think we're seeing some strength.

And then margins in that business -- the amazement is that you're now over 30 percent in that business.

Right.

Mark or Dave, what should we expect to '04 if you see orders continue to strengthen? Is the 30.5 percent a starting point for '04?

Mark, I will let you answer that.

Thanks -- well, there's a couple of things that are helping this year. Obviously, currency is one of them. And if the currencies were to move, that would be a negative factor.

The other is that as we look at '04, I think that we would tell you that we're planning to spend a little more money in the R&D side of that business than maybe what we have over the last couple of years, especially given the fact that the customers may be a little more receptive to new products in this kind of an environment vis-a-vis what it was like a couple of years ago.

So I won't give you any specific targets in terms of operating margins, because we really don't have them internally. I would tell you that 30 percent isn't a surprise to us. We've always known that that's a very profitable business. And the management that's running that business are very focused on profitability growth, and of course making smart investments to try to grow the revenue along with that.

So it's a long-winded answer, and probably not as direct as you'd like but I think that the 30 percent to our estimation isn't really a big surprise.

But the fourth quarter is seasonally strong for you normally in that business. So we should expect with higher R&D, assuming flat currency, that at least in the first quarter, margins step down again?

That's probably not a bad assumption just given the revenue, implications of the first quarter versus the fourth quarter.

Okay, and then final question just here on contractor margins -- they looked a little light, especially given the pace you had been running at year over year. Is it primarily because professional, as a percent of the mix, was lesser so this quarter?

Well, I think that's part of it, Michael. But also we had some of the warranty issues that I talked about with the G3 which impacted our operating margins. Frankly, we've made -- as I said, we made changes to our G4 plan there. We think that that will provide as good as or better warranty service for the customer, but reduce our expenses at the same time.

Charlie Brady, Hibernia Southcoast Capital.

Hi, thanks. Just to follow up on the warranty issue. I know you said you've got a new plan in place as of January 1. But what's -- how -- what's the runoff going to be on the old warranty plan? I assume those -- if you have a warranty, it doesn't just end because there's a new plan?

No, that's correct. With the new warranty plan is on --

Two-year or three-year, was it?

I'm sorry?

I'm sorry, I interrupted -- go ahead, I'll let you finish.

No, the G3 plan was actually a two-year plan. Now if you bought a piece of equipment on December 31st, you have a two-year warranty -- G3 warranty on that piece of equipment.

Anything you buy from January 1st on would be under the new G4 plan. It's actually a three-year plan on workmanship and defects. But, again, it's this opportunity for us to provide them, as I said earlier, a new lower (ph) -- which is really the wear (ph) part of the pump itself -- at a reduced price, rather than providing free repairs.

Okay. And how long had you had the G3 plan in place?

G3 had been in place -- I think, 4 years.

(OPERATOR INSTRUCTIONS) Jeff Burke, Robert W. Baird.

Hi, it's Mike Schneider again. The professional channel in '04 -- what do you view as the inventories in the stores? They went through somewhat of a beef-up, I think during the middle part of '03. But I guess any color you can give us on what you see coming in the professional channel, especially after the weak fourth quarter, would be helpful?

Yes, Michael, I think that they've got the appropriate inventory level in their stores. I think they're certainly more focused on cash over the last couple of years than perhaps they were previously. And frankly, I don't see that there's a large inventory base that has to be worked off out there prior to them buying new units. As I said, there were a couple of large orders that we got at the end of last year that didn't materialize this year. And I think that was basically based on cash more than anything. And you know, I think we will probably see those develop perhaps in the first quarter of this year.

And hopefully, the commercial part of that business picks up a little bit, too, because I think that that's been a difficult part of that business for us for quite a while. And we did see maybe a slight increase here in the fourth quarter on that side of the business.

I think that's a good point, Mark.

And -- well, that's consistent with what we've heard out of some of the other companies serving on the commercial side (multiple speakers). It certainly sounds like that business is improving on the margin. Did you announce any price increases on any of the contractor products at the beginning of the year?

What we do for price increase is -- primarily on our new units -- they will come out with a slight price increase. Frankly, there's very little price in contractor this year.

This year being '04?

'04, right.

(OPERATOR INSTRUCTIONS) If there are no further questions, I'll now turn the conference back to Mr. Sheahan.

Well, thank you very much for your participation here today. And again, we always appreciate your interest in Graco. And we look forward to seeing you somewhere down the road here in 2004.

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