Graco Inc (GGG) 2010 Q3 法說會逐字稿

Good morning, and welcome to the third quarter 2010 conference call for Graco, Inc. If you wish to access a replay for this call, you may do so by dialing 1-800-406-7325 within the United States or Canada. The dial-in number for international callers is 303-590-3030. The conference ID number is 4370547. The replay will be available through October 24, 2010.

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 for questions after the opening remarks from management. During this call, various remarks may be made by management about their expectations, plans, and prospects for the future. These remarks constitute forward-looking statements for the 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 1-A of Exhibit 99 to the company's 2009 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.

This conference is being recorded today, Thursday, October 21, 2010. And I'd now like to turn the conference over to Caroline Chambers, Vice President and Controller. Please go ahead.

Good morning, everyone. I'm here this morning with Pat McHale and Jim Graner. I'll provide some comments on the financial highlights of our third quarter, and Pat will follow with additional comments. PowerPoint slides are available to accompany our call and can be accessed on our Website. The slides include information about our consolidated financial results and each of the segments. After our opening comments, we will open up the call for your questions.

Net sales were up 29% to $190 million for the quarter as compared to the prior year. Sales increased in all divisions and regions with strong growth continuing in Asia-Pacific and solid growth in both the Americas and Europe. Operating earnings as a percentage of sales were 23%, up from 18% a year ago, with net earnings totaling $30 million. Currency translation has not had a significant effect for the quarter or year-to-date. Changes in Asian currencies and the Canadian dollar continue to largely offset changes in the Euro.

Our gross profit margin as a percentage of sales was 55% as compared to 53% in the third quarter last year. Higher production volume in 2010 has been the primary driver of the improvement in both the quarter and year-to-date rates. Material costs remain favorable as compared to last year, even with some material cost pressures during the third quarter. Although these cost pressures are likely to continue, we expect fourth quarter material costs to remain favorable as compared to last year.

Operating expenses for the quarter increased by $9 million as compared to last year. Continued strong operating results drove incentive and bonus provisions in the third quarter similar to the second quarter of 2010. For the full year, we expect that costs and expenses related to incentives and bonuses to be $20 million higher than last year. The effective tax rate for the third quarter was 28% and reflects the expiring statute of limitations and recent tax law rulings. Year-to-date tax rate was 32% as compared to 31% last year. We expect the full year tax rates to be approximately 33%.

The Federal R&D tax credit has not been renewed for 2010, and no benefit is included in the current rate. In future quarters, without changes in tax law, we expect a rate of 34% to 35%. Year-to-date cash flow from operations was $62 million as compared to $110 million last year. Our working capital investment increased in line with our increasing volumes.

Year-to-date inventories have increased by 27 million with an improvement in turn. We expect that inventories will be level in the fourth quarter. Accounts receivable have increased by $35 million year-to-date with consistent dates of sales outstanding. Primary uses of cash year-to-date have been capital expenditures of $9 million, a voluntary contribution of $10 million to a funded pension plan, dividends of $36 million, and share repurchases of $24 million. Long-term debt totaled $90 million at the end of the quarter with unused credit lines of $171 million.

Finally, backlog continues to be strong, although down 3 million from the end of quarter two as new product orders and contractors did ship during the third quarter. With that, I'll turn it over to Pat for additional comments.

Good morning. I'll start off by giving some color to our revenue performance during the quarter. I'll begin with Europe. Our sales in Europe were up 22%, 32 at consistent exchange rates versus the third quarter of last year. Sales increased solid double-digits in western Europe, Eastern Europe, the Middle East, and Africa.

Contractor equipment sales were strong despite difficult end-market conditions in many countries. The 30% increase, 41 at consistent exchange was driven largely by new products. Our base business in Europe contractor, excluding new products did increase at a low double-digit rate, due primarily to strong growth in Eastern Europe and Russia.

Although challenges and risks remain, we are optimistic about our growth opportunities in Europe for the balance of the year. Each of our divisions launched, or will be launching soon, new products that we expect will sell well in Europe. In addition, our European team continues to drive successful selling initiatives throughout the region.

Switching to Asia-Pacific, Asia-Pacific had another good quarter with double-digit increases across most product lines and countries. Our industrial and lubrication segments were particularly strong and the developing markets generally out performed the developed markets. In Asia-Pacific, this quarter and the full year are both higher than our pre-recession peak. We remain convinced of the long-term potential for Graco in Asia-Pacific. And our 2011 plans reflect significant incremental investment or commercial people, customer support, and training.

Now on to the Americas where we also saw good growth. In Latin America off a small base, we again posted gains in the high double-digit range, and exceeded our pre-recession peak. In North America, all segments were up double digits compared to last year. Our industrial segment continued to perform well, and our incoming order rate has remained relatively consistent. We're particularly pleased with the continued double-digit increases in our foam and poly equipment offering despite a dead US building construction market.

In the lubrication segment, we achieved double-digit growth compared to last year. Our industrial lubrication initiative had the largest gains, but for the first time this year, we also saw double-digit gains in our core vehicle services segment.

In contractor North America, the Pro Paint business was up strong double digits driven primarily by new product. Excluding new product we saw a modest single-digit improvement in Pro Paint during the third quarter. The home center business was up single digits compared to Q3 of last year, all due to new products. For the year, the homesteader business is essentially flat.

Switching to margins, gross margins were solid 55% for the quarter. And they really exceeded our historical annual levels. We continue to face gross margin headwinds on unabsorbed factory burden and pension expense when compared to our pre-recession years and believe that our current margin performance bodes well for earnings leverage as our base business improves.

Operating margins in industrial lubrication are significantly improved compare to last year's third quarter. Operating margins in contractor are similar to last year as costs associated with the new product rollout and incentives weighed on margin percentage in the quarter. We anticipate additional new product rollout expenses of approximately $1.5 million in the fourth quarter related to advertising and channel initiatives.

Excluding the return of incentive payments, incremental operating margins are as expected on base business increases. To the extent that revenue increases were driven by new products, the incremental operating margins were lower. New products require substantial up-front investments in selling, marketing, manufacturing, and engineering to be brought to market. Profit contribution on the new products will normalize as initial launch costs roll off and manufacturing process improvements are implemented.

Turning to our outlook, we are positive in terms of our growth outlook for Q4 and 2011. We believe the global industry economy will continue to recover and, combined with our investments in new products, new markets and new distribution, we expect good opportunities for continued growth in our industrial and lubrication segments in all regions. Our outlook on developing markets is particularly positive and we will continue to press forward aggressively with investments in those areas.

We remain cautious about our base business prospects and the US contractor equipment market, especially in the fourth quarter. We anticipate our contractor equipment channel partners will tightly manage inventories through year-end. We believe this will also negatively affect new product in contractor sales in Q4, as distributors will likely focus on selling down existing stocks and delay our restocking orders to Q1.

Despite a dim view on 'US' contractor prospects for Q4, we are optimistic about 2011, that it will be a growth year for contractor across every region. Our investments in new products and user conversion and channel expansion give us an opportunity for success in 2011, even with lackluster end-market growth. In summary, we're confident that our strategic organic growth initiatives are generating a solid shareholder return. And we intend to stay the course and harvest additional opportunities going forward. This concludes my prepared remarks. I now ask the operator to open the question to Q&A.

The question-and-answer session will begin at this time. (Operator Instructions) One moment please for our first question. Our first question comes from the line of Charles Brady. Please go ahead.

Thanks,morning, guys.

morning.

Can we just talk about--the new--the growth you saw from new product in the quarter, in particular, on contractor, was any of that a catch-up of stuff that had not been filled in prior quarters?

Well, our backlog overall decreased $3 million. I'll let Jim chime in on the contractor backlog if he's got it.

There was the decline, as Pat referenced, relates to the new products in the contractor division. So, some of those orders were recorded in the second quarter.

And so your commentary and prepared remarks on that, is that part of the reason you don't expect to see that kind of strength in Q4, is that you kind of caught up to where you ought to be on normalized delivery?

Really it has more to do with the end-market conditions and what we think our channel partners are likely to do in the fourth quarter. You know, we had--it would have been nice to launch the new products, especially the handheld product line earlier in the year, and we missed a fair amount of the painting season with some of the channel partners. We got good pipeline sale.

But my view, is that. with the current housing and construction market conditions, that our channel partners are going to be cautious now for the next couple of months and they're going to sell down the inventory that they have, and they're going to try to not do a lot of reordering until the first quarter. So, I'm still confident about what is going to happen with the products beginning in the first quarter, but I've got some reservations about how I think our channel partners will play inventory out through the end of the year.

And remember that's a typical seasonal pattern that we see in the contractor division. So, you know, the fourth and first quarter are always lower than our second and third.

Yes, yes. And just on the industrial equipment, the incremental margins on industrial this quarter year-on-year looked especially strong. Is that there anything in particular driving them? I see the breakout on your slides. Would you expect that kind of incrementals to continue into 2011?

Well, some of that is recovery and--of our capacity, manufacturing capacity. So, we're getting closer and closer to full absorption of our manufacturing costs in that segment. We still do have a point or two yet to recover. So, I will say that we're optimistic and will continue, but at a lower rate.

Great. Thanks very much.

Our next question comes from the line of Terry Darling. Please go ahead.

Thanks. Pat, wondering if maybe you can talk a little bit more about that fourth quarter US contractor expectation. Just struggling between Jim's comment, hey, it's normal seasonality and your comment, that sounded like you thought people would be a little bit more conservative. The comp actually gets easier on a year-over-year basis. So, and if you go back and try to triangulate what normal seasonality is. If you go back to the good days, it's down 5% or 10% sequentially, and then '07 when people really started to pull the horns in, you were down 25% sequentially. So, I don't know if you can help us narrow the gap there.

Yes, you know I can't give you numbers. I don't have any facts on it. It's just really, my feeling based upon talking to our salespeople and hearing from our operating people that our big channel partners are concerned about making sure that they manage their inventories pretty well through year-end. And, I think all of us a year ago were optimistic that the 2010 housing market, especially the second half, would be a little better than it's turned out to be. And so, I think the optimism is moved out a year.

And doing like those channel partners do, they manage their inventories well. I just think they are going to be a little bit conservative. There is a normal fourth quarter decline. You know, whether this is going to be, like the good times or the bad times, I don't know for sure. But certainly the end-market conditions are a little soft.

And what would you expect out of the Non-North America Business for contractor, in the fourth quarter?

Growth.

Sequentially you're talking about?

Growth over last year. I haven't sat down to look at the sequential piece, but I expect that we should have a decent quarter in Europe and Asia.

Okay. And then on the 2011 margin outlook, maybe for both industrial and contractor. I guess I'm struggling to try to think through What--what's transient terms of the impact in 2010 from pension and from--and new product sales in particular. But maybe you could take us through that, both segments there.

Sure. First of all, with respect to pension, we're seeing a nice increase in assets this year through September, in addition to the $10 million voluntary contribution we made in September. We had some nice gains on our positions. So, that would give us a tail winds.

One issue, of course, is with the decline in discount rates, our expenses is going to go--or excuse me, our PBO is going to go up. We think the off set there is that the assets will more than compensate for the increase, but we don't know yet, because that's an end of the year calculation. So--But overall, I would expect pension to be a little bit of a tail wind. With respect to the margins in the segments, as I mentioned earlier, industrial, we expect a little bit more absorption of fixed costs. That should help us improve operating margins. We should see the same in contractor.

In addition in contractor, we expect to have a benefit from lower costs with respect to these new products. Both in the second and third quarter, we had some extra costs for air freight, and our first production of a higher volume unit. We expect those costs to get smaller with each quarter, and then we have some automation expectations to be implemented in the first and second quarter. So, again some tail wind in the contractor area.

And so, Jim, I mean it sound like for contractor in '11 we can think about your more normal incrementals, you know, in the 40% plus range, and then the--some of these one-time costs that have hit 2Q and 3Q go away. So, you'd actually be north of that. Is that a fair, sort of balance of the comments there?

Well, we haven't yet made our decisions with respect to the one-time costs. We've done our first ever TV advertising in the third and fourth quarter. It impacted both the expenses you're seeing and the $1.5 million that Pat mentioned earlier. There is a likelihood that we'll repeat those costs next year. As of yet, we haven't made the decision.

And what's the 2010 all-in P&L impact from pension, the year-over-year increase?

Well, if you look at it compared to 2009 it's about a $4 million or $5 million improvement. If you go back to our best time, you know, when pension actually contributed a little bit to earnings or had negative expense, it's still about a $8 million headwind.

Okay. Thanks very much.

Our next question comes from the line of Kevin Maczka. Please go ahead.

Good morning.

Good morning, Kevin.

Jim, could I go back to your comment on industrial on the absorption? I'm just wondering, if you can talk maybe to utilization rates in each of the three segments, and if industrial is getting very high, are we butting up against some kind of ceiling there as volumes continue to improve?

Well, our measurements or our absorption cost is what we call our practical capacity. So, we have surge capacity that's higher than that. In other words, we have excess capacity and it's really this measurement that we use for accounting purposes.

So, again, we've got a couple points here on a year-to-date basis where we can get some more absorption in industrial. Contractor, again, maybe 3 points on a year-to-date basis, although the third quarter they were fairly close to capacity, and then the lubrication, again, on a year-to-date basis, we have about 4 or 5 percentage points yet to get to full capacity.

And in industrial, are you using that surge capacity already?

We're not.

You're not. Okay. In terms of the product development costs and some of these launch costs that are, I guess, somewhat one-time, are you suggesting that those start to come down going forward into 2011, or do those continue to stay elevated as we continue to develop new products all the time?

Well, on the specific product that I was addressing in the contractor segment, we should see improved gross margins. We should see, as a result, better operating margins, but don't assume that all of the incremental selling and marketing costs related to those launches are going to go away, because again, we've got decisions to make with respect to the end-market, and those won't be made until the first quarter.

Okay. And will that likely hold true for the international expansion, the distribution expansion as well, that you'll continue to make investments going forward there, or are we kind of reaching the point where we want to be with distribution?

No. Absolutely those costs will continue to increase in our planning for 2011. We have approved incremental people in all the developing markets, both in Asia and in Europe.

Okay. And then, finally, you mentioned selling price increases in the release. I'm wondering if you can give a little more color there on the pricing environment in general? And I know typically, input costs are not a big problem for you in terms of your ability to pass those on. Is that still your expectation here?

Yes, that's correct. Again, we're thinking in the 2 percentage point increase for 2011.

For price?

For price, correct.

Got it. Okay. Thank you.

Our next question comes from the line of Matt Summerville. Please go ahead.

Morning, couple questions. Just back to new products, is there any way for you guys to quantify, you sort of went over it in contractor, but just for Graco overall, if your core business in terms of volume and price was up 30% year-over-year how much of that growth is being driven by new products? And then I guess, how would you characterize the pipeline of new product launches slated for 2011 relative to 2010 at this point based on what you have on the drawing board?

Well, I'll take your second question first. But, you know, in terms of the dollar magnitude of 2011 versus 2010 new products, it's a little bit hard to say. We've some interesting things coming out, but this handheld product that we had here in 2010 was pretty big compared to what most Graco launches are. We also believe there's a nice opportunity for our 2010 products to have nice full-year 2011 impact. For example, this handheld product line, we didn't start making the first shipments until the middle of May.

So, it's not clean. But in general, our spending on product development across all the divisions is remaining strong, and we expect the pipeline of new products to be launched next year, at least in terms of the number of new products, to be as strong as the products that we had launched this year. Again, maybe not the home run that we had with the handheld, but we've got, we think an opportunity to get a lot more out of that particular 2010 product next year, in 2011.

In terms of your first question, typically we don't do a lot of breakdown on what our new product sales are doing for a variety of good reasons. We did in contractor specifically the last couple of quarters because of the magnitude of this handheld launch. It was so big that we thought you wouldn't really get a very good view of the underlying business without it. So, I'm going to avoid getting into details about the exact sales of new product in the other divisions.

Okay. No problem. One follow-up, with regards to incentive comp, I think you mentioned accruals are going to be up about $20 million year-over-year. Can we get the absolute numbers 2010 versus 2009? And then if Graco were to simply hit their long-term targets in 2011, and not exceed those growth rates, like you've had this massive out sized growth this year, obviously off a lower base, what happens to that incentive comp expense next year? How should we be thinking about that?

So, on a year-over-year basis, it's about a $20 million increment, and it's about $22 versus $2 last year.

I would say that on a normalized basis, if you got back to what we planned to grow, which I'll say is up 10% it's in $8 to $9 million kind of range.

Okay. Great. Thank you.

(Operator Instructions) Our next question comes from the line of Christopher Wiggins. Please go ahead.

Hi, good morning.

Morning.

Just curious, in the--with the advertising expenses in contractor, do any of those start to flow through in the third quarter?

Yes.

And if--I know it's early in the process there, but if that's successful it's a new strategy. Is it something you might consider using for other product lines, or is it going to kind of be focused on the handheld?

Well, you know, most of our product lines don't lend themselves to consumer advertising. This product is a little bit unique in Graco world in terms of its price point, the channel, and the attractiveness to a more general consumer base. So, I think it's unlikely that we'd expand this to other segments of our product offering.

The question for us is going to be whether we believe that this advertising has got a pay-back in the categories that we're targeting. So, we haven't made any decisions on that. But certainly, we're taking a look at the results and will probably do some more looking at that as we go through the key part of the painting season, which really starts in the March kind of time frame.

Okay. Great. And just one final one. If--have you been able to, I guess, looking at replacement part sales, is there anything you can gather as far as, if part sales maybe increasing and people trying to extend the useful life of equipment in--as opposed to replacing with new equipment and, you know, potential pent-up demand building?

From my perspective, things seem to be fairly normal. It did look a little squirely there from, I'll call it, late '08 through the middle of '09. But other than that, nothing really stands out in my view.

Okay. And then actually one final if I could. On lubrication, with the plant consolidation and the productivity improvements you've done there, is there more room for the margins to move higher, or is it going to be all volume-driven from here to kind of get those back up toward historical ranges?

It's substantially volume driven. But keep in mind that we do have pricing activities and cost reduction activities in our product line in all of our factories on an annual basis. So, we've talked about getting that number up north of 20%, and we're still very confident we can do that; but definitely we need volumes returned more to the kind of '07, '08 historical levels for that to happen.

Okay, great. Thank you for your time.

(Operator Instructions) Our next question comes from the line of John Franzreb. Please go ahead.

Just staying on lube for a minute. Could you talk a little bit about the increase in volume, what's driving that demand?

Well, as I mentioned in my comments, that we're finally seeing some life in the vehicle services segment. It's really the first time this year that we've had a quarter where we've seen double-digit growth. We've been seeing that in our other segments. So, it does appear--and again, from our view, although the construction markets are bad and unemployment is bad, we are feeling definitely like there's some recovery going on. And I think, we're starting to see that in our vehicle services segment as well.

People are just a little bit more willing to invest than they were a year ago when things stopped so quickly. So, it's more or less broad-based. I can't say that it's all happening in municipal or in fleet. We're seeing just a general increase in activity across our product lines and across our end-markets here in the US.

And Pat, can you give us a sense of what the sell-through is on the handheld product, at the customer level or if you're taking share, do you have any kind of, insight into what the demand is out there for the product?

A great extent, there's not share to take, because it's a category--there was handheld consumer products, very cheap ones, but there was really no handheld professional products. So, to the extent that we're getting sales, it's really not cannibalizing any of our existing product, and it's not really taking share from anybody, it's really a unique product category out there. In terms of the sell-through, it's a little bit early for me to say.

I'm going to hold off talking about sell-through probably until summertime next year. Again, we launched late, we didn't even start shipping to our channel partners until the middle of May. And then on the consumer side, we didn't start shipping, I think, until late August, early September. So, there are thousands and thousands of them that are in end-users' hands that they've purchased, I can tell you that. And the feedback in terms of performance and quality so far has been very good. But, the overall sell-through rate, I think it's too early to make a judgment on that.

Then why do the TV advertising? Advertising, it may be a seasonally weak time of year now. Why not just hold back and wait until spring?

Yes, we agonized over the decision, trying to figure out if we should wait until spring or not. You know, when you have a hot product that doesn't have any competition in the marketplace, one of the things you want to do, is you want to try to tie up the channel and you want to try to create the vision with the end-users that you're first with the best. So, although it was late, we figured that it was probably still the right thing to do, and we ran it for, I don't know, I think about 30 days.

So, we'll be getting reports on what our actual sell-through was on that campaign here in the coming weeks. And it'll probably influence our decision for the spring. I'm not sure it'll be a huge factor in our decision for the spring. But, you know, hopefully we at least broke even on that initiative here this fall.

Okay. Thanks a lot, Pat.

And we have a follow-up question from the line of Terry Darling. Please go ahead.

I had a couple. First, Jim, I think there was a comment on the inventory being kind of flat in the fourth quarter. Did I hear that correctly? And then, can you just talk about, kind of the whole working capital profile of the Company this cycle versus last cycle? I'm trying to think through, the much greater weighting to international business which presumably has got a little bit higher working capital requirements and just how we should think about that as volumes come back in 2011?

You did hear right, Terry, that we expect inventories to stay flat for the quarter. You know, as production ramped up this year and orders started to come in, we found our service level dropping a little bit . So, we believe that we took inventories down too much in 2009. Part of this is rebuilding it. Part of it is also in support of our new product launch.

And the supply chain, you're absolutely right. Both source parts and deliveries to the faster growing export markets cause our supply chain to get a little bit longer on the inventory side. With respect to receivables, we're pleased with our performance. You know, our days of sales and receivables are lower this year than last year. So, I'm pleased to see the growth in the number, because that represents absolute growth in sales. And again, we're happy with the performance on that side.

We think we're at a sustainable level now for inventory. Hopefully through the year-end 2011 as well as 2010. But, we'll see some seasonal peaks from this point forward.

I mean again, don't you think sort of structurally with the higher international weighting, I think, used to be kind of low to mid-20% range working capital sales? Should we think more mid to upper-20% range on a normalized basis with the model as it sits now?

I would say in the mid-20%'s.

Mid-20%'s? Okay. And than that dovetails into kind of a discussion on the use of cash flow. I see the step-up in buy-back. Can we talk a little bit about your thinking about that going forward?

Well, we saw an opportunity midsummer here with what I referred to as the Euro panic, when industrial stocks got pushed down. So, we did pick up a number of shares below $30 a share. We think the stock is an attractive return for our shareholders, more attractive at less than $30, but still attractive today. So, I think you can see us from time to time picking up small numbers of shares. Again, our goal today is to hold our share account flat.

And on capital spending, any thoughts for us on 2011 capital spending, up, sideways, any thoughts there?

No. It will be higher. Our guidance has been for this year, sub $15 million, and our expectations for next year is in the mid $20's, $25 is a good midpoint.

Okay, And then just lastly, Jim, I think in just part of your answer to the incentive comp question you'd referenced the 2011 core growth under 10%. Let's assume that meant upper singles. Does that include the impact of new products, or you just talking about the end-market there?

I guess I'm throwing that out as what I see the sell-side projecting our growth, that's the incentives related to the--that volume, our planned volume is not at the 10% level.

Okay. Thank you very much.

(Operator Instructions) Our next question comes from the line of Matt Summerville. Please go ahead.

I have one follow-up on contractor and then one on industrial. Pat, I think in your remarks, you indicated your business in the home center channel was up maybe low to mid-single digits, I believe, in the third quarter all attributable to new products. I guess, what are you seeing sort of the base home center business and how do you feel about your customer inventories there right now? And then, in terms of just shelf space, how--what does the trend look like for you at both Home Depot and Lowe's over the last couple of quarters?

You know, I don't want to talk specifically about any individual customer. I can tell you that we've got our, I'll call it, tradesmen part-time painter product in more outlets this year than we had last year. And, in general we feel pretty comfortable with where we are from shelf space. From an inventory perspective, they lump into that whole concern that I've got about contractor in the fourth quarter on distribution inventory levels. I think that the home centers, like the paint channel, will be cautious with inventory stocking in the fourth quarter, and that I would expect them to be more aggressive with inventory stocking going into the first quarter.

And then Pat, just on the industrial business, can you sort of do maybe a quick walk-through, you know, geographically provide a little bit of color on what end-markets you're seeing as particularly strong, maybe those that are also lagging as well?

Yes. You know, that's interesting. Spent a lot of time over the last couple of quarters tying to figure that out. Really when you take a look at our business, it's been pretty dog-gone even on the industrial side. Really regardless of product line and regardless of region and regardless of the likely use of the product, and we sell through distributions. So, I don't have a report that tells me what market it went into.

But we've seen a pretty consistent double-digit growth across everything. And again, that's partly what makes me feel optimistic that we've got sort of a more normal-ish global industrial recovery going on. And certainly we're seeing more in the developing markets than we are in the developed. But even there, the developed markets in the Western Europe and the US on the industrial and now on the lube side are not doing too bad. So, it's nothing really that stands out to me, believe it or not.

How do you feel about inventory levels in the general industrial distributors you deal with, or another way of asking it, how does sell-in look relative to sell-through in that portion of your business right now, the best that you can tell?

Yes, you know , for the best I can tell, that's pretty stable, and that I'd expect sell-in and sell-out to be similar. I think we've been in that situation for most of this year. We believe that our industrial distributors did react globally to what was happening at the end of '08 and through the first half of '09. But really, my belief through 2010 here is that for most of this year, our industrial product is--or, our industrial sales have reflected sell-through.

Thanks for the color, Pat.

And if there are no further questions at this time, I would now like to turn the conference over to Pat McHale, President and Chief Executive Officer. Please go ahead.

All right, I'd like to thank everybody for their time this morning. And just reiterate that, in our view, the global industrial economy looks pretty good, and that our opportunities in the developing markets look nice for next year. And that with all of our strategic growth initiatives that we've got going on, we do believe that we're going to see growth in all of our divisions and in all of our regions for 2011. So, we'll go back to work, and thanks again.

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