Graco Inc (GGG) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the second quarter 2006 conference call for Graco, Inc. If you wish to access the replay for this call you may do so by dialing 1-800-405-2236 within the United States or Canada. The dial-in number for international callers is 303-590-3000, and the conference ID number is 11065299. The replay will be available through July 30, 2006.

At the request of the Company, we will open the conference up for questions and answers after the opening remarks from management. During this call, various remarks may be 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 1-A of and Exhibit 99 to the Company's 2005 annual report on Form 10-K. This report is 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.

At this time all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. [OPERATOR INSTRUCTIONS]. This call is being recorded today, Thursday, the 27th of July, 2006. I will now turn the conference over to Mr. Mark Sheahan, Chief Administrative Officer of Graco, Inc. Please go ahead, sir.

Good morning. Welcome, everybody. We’re here this morning; Dave Roberts, Jim Graner and myself are on the line. We’re going to review the second quarter results, I’ll go through some highlights and then we’ll take your questions.

First of all, if you saw the release that we put out last night, you noticed that we experienced underlying growth in all three of our reportable business segments again this quarter. This is our seventeenth consecutive quarter of sales growth over the prior year's quarter, and it also represents our twelfth consecutive quarter where all three of the segments reported revenue gains.

Overall, sales were up 10% in the second quarter. They came in at a record $219 million, and the increase was, again, summarized as growth in the industrial segment of 11%, growth in the contractor segment of 8% and growth of the lubrication segment of 18%.

On the bottom line for the quarter, our net earnings and diluted earnings per share were up 16% and 18%, respectively. The growth in the second quarter earnings includes expenses for stock-based compensation of approximately $1.8 million after tax. For comparison purposes, there were no significant expenses for stock-based compensation last year. As a result, on an apples-to-apples basis, our net earnings in the second quarter were 20% higher than last year and our net profit margin of 18.9% was a record exceeding last year’s amount by 900 basis points.

Next, I'll talk briefly about each of the segments and how they performed in the quarter. First of all, the industrial segment reported sales of $105 million which was up 11% versus last year. Sales in the Americas were up 13% with the business experiencing strong gains across all of the major product categories. In particular, sales in the finishing process and high performance coating categories were strong this quarter and on a year-to-date basis. In Europe, sales were up 13% versus last year. And as in the Americas, finishing and process and protective coatings were particularly good in Europe. In Asia, our sales were 7% higher with strength in China and Southeast Asia offsetting some declines in Korea and Japan. The second quarter operating margin was 31% of sales versus 26% last year for the industrial segment, and our second quarter operating profit dollars were up 31% versus last year.

To summarize industrial, we continued to experience growth in this segment in the quarter with gains coming in all three regions and across the majority of the product categories.

Next, looking at our contractor segment, in the second quarter, they reported sales of $97 million. That was up 8% versus last year’s record results. In the Americas, our sales were up 5% with growth in both the professional and semi-pro product categories in the quarter. In Europe, our sales were also higher again. They were up 12% with increases in all product categories and throughout all of the major regions. The team in Europe continues to remain focused on end-user conversions, new distribution and new products.

Sales on Asia were up 42%, off an admittedly small base, but we’re building our presence throughout that region. Our operating profit margin for the contractor segment in the quarter was 31%. That compares to 29% last year. And our operating profit dollars grew 15% versus last year's second quarter.

We remain positive about our outlook for the contractor segment. Again, we experienced growth in all three regions. This quarter really demonstrates the growing global footprint of the business as our strong international sales contribution to the overall growth of the business, both in terms of revenue and profits. While the housing starts are lower than a year ago in the Americas, the overall construction and remodeling market remains good. And as evidenced by the record high levels of profitability this quarter, we continue to manage the expenses in the business to support and maintain a profitable growth of the business as we move forward.

Next, looking at our lubrication segment, the second quarter sales for that division were $18 million, which is up 18% from last year. Again, this business experienced good sales growth across all of its major product categories, including the electronic fuel pumps that were acquired in the PBL acquisition last year. Our second quarter operating margins were 25%. That’s versus 27% last year.

Turning next to some overall results for the company, first our gross profit margin, expressed as a percentage of sales, came in at 53.5% for the quarter, and that compares to 51.6% for the same period last year, a 190 basis point increase. Last year’s gross profit margin was reduced by approximately 120 basis points due to a higher cost of inventory of the acquired businesses in last year’s first half. The remaining portion of the improved gross margin was due to manufacturing cost improvements, some higher volume and improved productivity. We experienced slightly higher raw material costs in the quarter. They’ve been offset by other sourcing initiatives.

Reviewing our operating expenses for the quarter, our operating profit margin came in at 29.2% compared to 27.4% last year. And despite increased product development spending of $2.1 million of expenses from stock-based compensation and the $300,000 contribution to the Graco Foundation in the second quarter, our operating expenses, when expressed as a percentage of sales, were flat with last year. Again, we’re spending in a disciplined manner and this, combined with the aforementioned increase in gross profit margin, led to record levels of operating profitability in the second quarter.

The tax rate for the quarter was 35%, consistent with what we’ve experienced here so far this year. Some other items: cash flow from operations was strong at $64.5 million. That’s up 30% from the same period last year. Significant uses of cash so far this year include dividends of $20 million and share repurchases of $46 million.

We mentioned in the release some information about the Lubriquip acquisition. As you know, we recently announced the purchase of Lubriquip from IDEX Corporation for approximately $32 million in cash. Lubriquip will immediately begin to contribute to Graco’s sales and cash flow.

We announced today that we are exiting the facilities that Lubriquip had in Ohio and Wisconsin and consolidating those operations in Minneapolis with our existing lubrication business. We expect that this will generate significant savings, and the consolidations are expected to be completed in 2007. The actions will involve severance and relocation costs which we’ll discuss in the coming quarters as they’re incurred. The purchase price allocation also has to be finalized and will be done so in the third quarter, and information related to intangible amortization and cost assigned inventory will be provided in future earnings announcements. Overall, we’re excited about the opportunities that we’ve identified to improve the profitability of the Lubriquip business.

In summary, we had another record quarter. This is our seventeenth consecutive quarter of sales growth versus the prior year and our eighteenth quarter of consecutive net earnings growth. The business was generally strong across all the segments and geographies again this quarter, and we had good tempo as we head into the third quarter. Businesses that we acquired last year are contributing to earnings and cash flow, and we believe that these positive trends are continuing.

That concludes the opening remarks, so now I'll open up the call your questions. Michael, if you would please do that.

[OPERATOR INSTRUCTIONS]. And our first question is coming from Robert Lagaipa. Please go ahead.

Hi. Good morning.

Good morning, Bob.

Just a couple questions. I guess, one, can you maybe talk about the impact of the acquisitions in the second quarter, just in terms of the integration costs associated with the prior acquisitions, Liquid Control, etc.? And then I was also interested in the margin impact in the lubrication segment, just in terms of the margins being a little bit down in the down in the quarter and what you’re expecting moving forward, especially in light of the Lubriquip acquisition.

Well, first of all, the expenses that we incurred in the second quarter related to the other acquisitions or previous acquisitions were about $1.5 million. I think we stated in the press release in the first quarter that we expected that to be approximately $4 million to $6 million acquisition integration costs in this year and we realized the $1.5 million in the second quarter. We would expect that to be about the same over the next two quarters. And at that point, we should be fully integration with the Liquid Control and Gusmer acquisitions that we made last year.

The impact on margin in lubrication in the second quarter, there were two elements of it. First of all, we still have the start-up costs of the plant in China. That had some negative impact. And then we also had the negative impact of the PBL acquisition which is running at margins probably half of what we normally expect that to run. Now those will improve as we go through the integration of PBL and we get the plant fully running in Sujo [ph]. Lubriquip, they’re running at margins significantly less than what our normal margins are. And the reason that we made the decision to close the two operations that they have, one in Ohio and one in Wisconsin and to integrate them here in Minnesota, is that we thought we’d have a much quicker rate of improvement in those margins. And that’s the reason we’ve done that. But I would expect that integration will take place throughout ’06 and ’07, and toward the latter part of ’07, you’ll start to see margin improvement in the lubrication business.

Mark, can you just talk about - - because you also mentioned in the press release, and I’m not sure if it was just a little bit unclear as to whether this is separate or not, but a new facility costing approximately $14 million. Now this is something separate than actually moving the existing operations to Minnesota, or how should we think about that $14 million expenditure?

Mark. What I’ll end up doing is - - that $14 million of the total cost - - we’re buying a facility for much less than the $14 million. There will be costs associated with the capital equipment that will be going into that building and there are also some costs associated with the severance, moving costs and so on that are included in that $14 million. We don’t have a breakdown of that cost yet. In fact, we’re closing on the facility here next week. It’s, again, a separate facility that will take the Warrensville [ph] plant, the Madison, Wisconsin plant and the operations that we have in our Riverside facility today and consolidate those into a given facility.

So that’s going to be a one step process. It’s not going to be moving the stuff to your existing operations and then moving them again. It’s just going to be a one step process in terms of moving it all to this new facility, correct?

That’s correct.

Okay. Last question, if I could, Mark, is just with regard to share repurchases, obviously the shares have come under weakness, along with many of the other industrial names. And I know you had repurchased 600,000 shares plus in the second quarter. Is that ongoing in the third quarter? Have you repurchased additional shares given the recent weakness? Can you maybe just talk about use as a cash flow, including repurchases?

I think I’m going to turn that one over to Jim Graner. Jim really is in charge of the share repurchase activity, so maybe Jim can give an update there.

Great.

Yes. As you know, we have our ongoing repurchase program at seven million shares. We’ll be active in the market. We have been active in the market.

Have you repurchased shares here in July?

Again, we’re in the blackout period.

Okay.

So our repurchases were limited. We will be back in the marketplace after the blackout period ends.

Okay, terrific. Thank you very much. Good quarter.

You’re welcome. Thanks.

Thank you. Our next question is from Ned Armstrong. Please state your company name followed by your question.

Yes. Ned Armstrong with FBR. Good morning.

Hey, Ned. How are you?

I’m well, thanks. With regard to the Lubriquip acquisition, can you first just give the timeline as to when you think those margins can reach Graco like margins? Is it the typical eighteen to twenty-four months, or might it be sooner?

Ned, I would think that it’s going to be the eighteen to twenty-four. There’s some capital equipment that has to be purchased. We’re going to end up reprocessing the business that they have in their plants today, and that will take us generally the eighteen to twenty-four months. But I think at the end of that period, you will see a significant improvement in the margins of what they were reporting originally.

And do you see a somewhat gradual ramp there, or will it be highly back-end weighted?

No, I think that we’ll start to see some ramp-up. That’s not going to occur until probably sometime in the mid part of ’07. What we’ve got to do is get this facility purchased, get it outfitted with new equipment and then start reprocessing the work that they’ve got in the two plants that we bought and moving them in. And we won’t see anything until that happens.

Okay. With regard to the Lubriquip business, are there any synergistic opportunities that you see? And if so, can you describe some of the more promising ones?

Well, certainly the initial cost savings that you get are a result of not needing the management structure.

Right.

So the management structure will go away. With the closing of the facility sometime in 2007, all of the infrastructure associated with operating those facilities will go away. And, actually, we’ll be performing the work from the director labor side with fewer employees than were being used to manufacture the equipment.

We also see some ability to move their products through our distribution. There is some overlap, but not a significant amount.

So from the product customer, there’s not a great deal of overlap. Is that a fair characterization?

That’s correct.

Okay.

There’s some, Ned, but it’s very small. What we end up doing is basically picking up a new distribution channel with the probably that we’d be able to cross-fertilize that distribution channel with products from both companies.

The products themselves are very similar to our technology, so we understand the technology of the products and they’re heavily machined and we can bring some value on the machining side. So the bulk of the synergies are manufacturing in nature.

Okay, good. Thank you.

Yes. You’re welcome.

Thank you. Charles Brady has the next question. Please state your company name followed by your question.

Thanks. Beemer [ph] Capital Markets. Can you guys give us the growth rates with the FX impact?

There really was no impact in the quarter, Charlie, on FX. It was very neutral.

Right. It was neutral this quarter, Charlie, as compared to previous quarters.

Can we dive into the home center growth a little bit. Obviously going out (unintelligible) first quarter, you guys have seen a take-off. And I’m just wondering, can you quantify a little bit more as to what you’re seeing in the home center channel?

I’m going to let Jim answer that because there had been some change in the way we were billing that concerning freight. And let me just have Jim go through that with you because there was greater growth than what you guys were seeing.

The second quarter, we did see positive growth in the home center, on a reported basis, about 5 percentage points. We do have business term difference with the home center in a couple of different areas. In particular, we lowered our price this year for freight. Home Depot approached us and said, “Gee, we’d like to pay our own freight costs. Would you give us a corresponding reduction in the selling price?” which we agreed to do. And our sales growth was impacted in that segment about 4 to 5 percentage points because of that price reduction. But our costs also dropped in line with that. So our growth was closer to a comparable basis if the terms would have been the same, closer to 8% to 9%. That’s also one of the things you see when you look at the operating profits for that segment. You see a 3.6 percentage point improvement in the six month period. And part of those terms were there is a lower selling price, but also lower costs are driving that growth.

Okay, Charlie?

Yes. Thanks for the clarification.

You’re welcome.

One more question and I’ll get back into queue. You guys think - - last call were going to put some price increases effective February 1st and then for Asia, March 1st. How much growth came out of that this quarter and are there additional pricing increases going to be put through in the rest of the year?

Charlie, we do not have plans for additional price increases. And the price increases that we realized on an effective basis were very small in the quarter. I think we’d be struggling they were slightly more than a point.

Okay, thanks.

Okay.

Alright, thank you. Matt Summerville, please state your company name followed by your question.

Good morning. Key Bank. A couple questions. You went through what you saw on the home center channel as far as demand. Can you talk in a little bit more detail around the professional paint channel and contractor? And then just moving over to industrial, I’m wondering if you’re seeing any signs of slowing within any of the end markets you serve or what are your distributors telling you that their customers are experiencing? More of an up-to-date demand viewpoint there.

Yes, Matt. We’ll do that. If you look at the professional line of our contractor business, it remains very strong. The out-the-door sales of some of our largest customers are all up double digit, and we’re very encouraged by that. I think the misnomer in our contractor business is that it’s tied solely to housing starts. And, Matt, as you well know, that isn’t the case. Commercial real estate certainly drives that business. Resales, repaint and remodels all have a significant impact in that business. And the size we’ve seen certainly in the second quarter and just speaking briefly about incoming order rates, starting in the third quarter, still remain relatively strong. So we’re optimistic about what’s happening in the professional channel of the contractor business.

Industrially, we have seen no indication at all that there’s a slowing anywhere in the world. Korea was slightly below where they were last year. I think that’s a soft economy there. Primarily, their automotive business is just not as strong as what it had been in the past. Japan is soft only because the comparables were very difficult. Last year, the automotive companies changed to water-born paints and they had significant projects that were underway in Japan. We have not seen a slowing in the industrial economy anywhere other than what I mentioned.

Okay. And as you look in your industrial business in the third quarter, I think last year, if I remember correctly, there was a little bit of an inventory purge in the channel, if you will. Can you just comment on how inventories are looking among your distributors right now and whether you expect the same thing to occur this year?

Matt, Jim and I are perplexed about the comment about the inventory declining. Are you talking about in the industrial business last year in the third quarter?

Yes. I saw, last year, you had a really slow start to July.

What we had was that Home Depot.

Okay. That’s what it was.

Yes. It wasn’t in the industrial business.

Okay.

The great thing about our business, and I think we’ve mentioned this to you all before, is that because of a response rate, the time in we deliver on an incoming order, our distributors don’t carry a lot of inventory. So we have not seen any either build-up or decline in the level of inventory the distributors are carrying compared to what it was last year.

Yes. I was referring to the Home Depot thing. Okay, thanks.

No problem.

Thank you. John Moore, please state your company name followed by your question.

Hi. Robert W. Baird. Good morning, guys.

Hi, John.

I just had a quick question here on the contractor segment. From your comments, it sounds like Home Depot did restore their normal order patterns following the first quarter’s restocking?

John, they did and they didn’t. They’re still driving - - where they were normally six to eight weeks worth of inventory, they’re really driving to carry four weeks worth of inventory and most of the stores are at that level. So depending on how Home Depot does going forward from an inventory adjustment standpoint, it looks like they’re at the level that they want to be at.

Okay, alright. Then moving over to the industrial segment then, the margins there which were [unintelligible] again this quarter. I’m wondering, have we seen the true potential now of Gusmer and Liquid Control acquisitions?

No, we still have the Lakewood facility that is running that we got with the Gusmer acquisition. We have the Villanova stain operation that is still up and running. Those will be certainly - - the Gusmer operation in Lakewood will be eliminated at the end of this year, and we’re going to downsize significantly the Villanova operation. There will be some profitability improvement as a result of closing those facilities.

In addition to what Dave said, our relocation costs for those operations are charged against that business segment. The $1.5 million that we had in the quarter is charged against that business segment.

So there was some inflation or deflation, I guess, in the margin as a result of that.

What I’m trying to say is there will be two point of profit improvement. One is the removal of the relocation costs, and two is the elimination of the costs of those facilities and operations.

But there’s still room to improve them, John.

Alright, that’s helpful. Impressive, too.

Thanks.

And can you just talk a little bit about the mix of business in industrial? What product lines are strongest or lagging?

Just to give you a general feel, our finishing business is very strong. Our process business is very strong. The high performance coatings and foams business is very strong. In relative terms, it’s exceptionally strong. The sealants and adhesives business is relatively flat. Now much of that business is driven by automotive, and the domestic automotive manufacturers had no big projects during the first half of the year, so we would anticipate as more and more of the transplants continue to build facilities, plus the fact that domestics have announced plans to expand operations in Mexico, we think that will start to drive the SAE business again.

Okay, alright. Great, guys. Thanks.

Thanks. You’re welcome.

Alright, thank you. Ned Armstrong, please go ahead with your follow-up question.

Yes. You had alluded to continuing to see strength in the contractor business, and I just want to try to get a little bit more about how the new residential construction is playing into it. I know, in the past, you’ve commented that you really try to gauge that by the type of machine that is sold. Is that still the case or are you able to get more color on that from some of your larger distributors?

Ned, not really. If I look at our largest customers, a high percentage of their work is commercial. Now it’s not new commercial building, but it’s commercial repaints. If you’ve got a strip mall or a Wal-Mart or whatever it may be that needs to repaint the exterior of the building, our contractors generally follow through and are able to do that. So it’s very difficult for us to give you an idea of what’s associated with new home construction as compared to what’s associated with either new commercial construction or repaints in commercial. But you’re right, the higher volume units generally go into bigger jobs, and those generally are commercial buildings as compared to individual homes.

And have you seen volumes in the higher units pick up relative to the lower volume units?

Not significantly, no. There’s nothing there that would suggest that there’s been a change in the mix of equipment that we’re selling. Now one of the things that’s driven our contractor business over the last year is the introduction of our texture equipment. We’ve gotten very nice growth out of texture, not only in the U.S., but also in Europe. So some of the growth is coming as a result of new products that we’re introducing which carries into different segments.

Okay, great.

The other big change, too, is the whole international component of business becoming a bigger piece of the pie. And as that grows faster, that’s helping the overall results visavee what you would have seen five or six years ago.

And that is predominantly Europe and the migration from North to South of the baby boomers and the second homes?

Yes, a lot of it is Europe, but Asia is growing, too. So the longer term outlook is pretty healthy for both the Europe and Asian markets for this type of equipment.

Ned, the European business is a significant driver of the global business. Asia is still in the infancy stage, and it’s growing and it’s growing at a very nice rate. But still compared to Europe, it’s a smaller component of that total global business.

Okay, good. Thank you much.

You’re welcome.

Thank you. Mr. Ned Barland [ph], please state your company name followed by your question.

Next Generation Equity Research. Good morning, guys.

Good morning, Ned.

A quick question on raw materials. The stainless steel impact in the quarter?

We still have cost pressures, there’s no question. In fact, not just stainless steel, but all of the commodities that we buy - - steel - - carbon steel was up somewhat in the quarter. If you look at everything from the nickel which goes in the stainless steel to tungsten that we buy either in manufacturing processes, they all continue to have some upward pressure on them. I think they, if I recall looking at the charts over the last couple of days though, the incline of the increase is much less than what it was at the end of last year and earlier this year.

If I can expand a little bit on what Dave said there with respect to the basic metals, again, our sourcing efforts that are done by our purchasing group are still bearing fruit. And overall year-to-date, we have a fairly breakeven position. It is a little bit positive with respect to all of our purchase costs with respect to last year. In other words, our costs are down slightly from where they were a year ago in total.

So despite material going up, the guys have done a nice job in reducing our overall purchase costs.

Great, thank you.

You’re welcome.

And we have a follow-up from Bob Lagaipa. Please go ahead.

Hi. Good morning. Just a quick follow-up. I was just interested in the mix of the businesses - - actually, the company overall. Just in terms of the equipment versus the accessories, has that changed at all within the last year or even within the last quarter or so?

No, our parts and accessories business has remained relatively constant. We’re in that 40% range for that compared to equipment. We’ve seen no significant change there or even any change in that area.

Okay, terrific. And just an update on the Chinese facility, when are you looking for that to be constructed, completed, etc. and start delivering shipments?

It’s up. We had our first production runs that really were preproduction runs that were shipped in at the end of last month/early this month, and they are going through quality tests. I would hope that by the end of the third quarter that they will be producing parts and shipping parts.

And is that going to be another, let’s call it, a beachhead to some degree for the recent Lubriquip acquisition as well? Is that the long-term goal or is it something different just specific to the existing lubrication business?

No. Eventually, if the business - - the Lubriquip business is primarily a North American business. When that grows in the rest of the world, that will become a manufacturing location at sometime perhaps for that product. Again, we’ll follow the same model that we’ve established for our existing lubrication business. We’ll do the manufacturing or machining here in the U.S. where we can get leverage out of the equipment that we buy. We’ll ship the components in. They’ll source commodity type items and those will be assembled and shipped to customers locally.

Great. Thanks again.

Okay.

Thank you. Turune Cana, please state your company name followed by your question.

It’s Copper Arch Capital. Morning, gentlemen.

Morning, Turune.

Just a quick question. It’s more of a philosophical question. Surely with the housing numbers continuing to weaken and inventories rising all around the country, I’m just wondering if 2007 is a year where, again, orders are down and housing starts are down. Can you guys feasibility grow earnings in that environment?

Well the answer is yes. Now obviously it depends upon if it really had a dramatic impact on the contractor business. We’d have to make adjustments in our cost structure and so on and so forth. We’re the last guys you want to ask what’s going to happen in ’07, primarily because we operate on such a small backlog.

Sure.

Everything that we can see though, Turune, is a forecast is that housing starts are suggested to still be in the $1.8 million territory. And if you look at only that factor, that’s still a relatively healthy market for us. Now if it dramatically declines, it will have some impact on our business. But we think we can still improve the profitability because we’ve got these acquisitions that we’re integrating. We’ll get some margin improvement as a result of those. We’re always constantly looking at ways to improve the process. So to answer your question, we haven’t finished yet.

As well as we think the non-North American construction is going to continue to be strong. The 12% growth we had in Europe and the 40% plus percent growth in Asia we see continuing. So we see strength in the contractor business outside of the U.S. continuing through 2007.

Okay. Thank you, gentlemen. Great quarter.

Thanks, Turune.

Thank you. Richard Wilson, please state your company name followed by your question.

Yes. Hello, gentlemen. Good afternoon. Richard Wilson. Fred Meedle [ph] Asset Management. Just really a follow-up from the last question with regards to organic growth pertaining to the contractor segment that experienced a slow down. And forgive me, I joined the call - - my associate was listening to begin with I haven’t caught up. So forgive the question if you’ve already answered it. But can you guys throw in a bit more detail what (unintelligible) the 9% to 5% slow down from Q1 to Q2 in that segment?

Well, I’ll let Jim Graner go through the numbers, but we did answer that earlier.

I apologize.

No, it’s okay. It’s okay. Jim, why don’t you just walk through it.

Well, again, you’re concentrating on the North American piece of the business. We had a very strong March in the first quarter. Our June was relatively weaker in the pay channel site. The opposite was true on the home center. We had a weak first quarter and a stronger second quarter. Part of it is just the load of various channels and the way they fell quarter-to-quarter.

The good thing about it, Richard, is that we were saying earlier is that the out-the-door sales of our largest customers or our largest distributors are still very strong. They’re certainly in the double digit category, if not in the twenties or so. So we’ve seen some real nice growth of in-store sales or out-the-door sales. And the retailers that are selling our equipment is still very strong. So we haven’t seen anything that would indicate that there’s a dramatic slowing in the contractor business.

Okay. Thank you very much.

You’re welcome.

Thank you. [OPERATOR INSTRUCTIONS]. And if there are no further questions at this time, it appears there are not, I will now turn the conference back over to Dave Roberts.

Thank you all for attending the conference call. We really appreciate your interest in Graco. As we’ve said, most of the analysts that follow us have focused on the contractor business, that business is not a new housing start only business. So we’re optimistic about what’s going on in the contractors business. We’ve seen some real growth - - nice growth outside of the U.S. We remain cautiously optimistic in our look ahead.

So with that, again, thank you all for calling and we’ll talk to you next quarter.

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