Brad Hewitt

Brad Hewitt asked about capital allocation priorities following the Elo acquisition, given the pro forma leverage of around two turns. He also inquired about Elo's historical organic growth profile from 2019-2024 and whether the expected revenue synergies are incremental to its 5-7% growth algorithm.

Answer

CEO Bill Burns affirmed that the near-term focus will be on integrating Elo, but the overall capital allocation strategy remains unchanged, balancing organic growth, strategic M&A, and shareholder returns. CFO Nathan Winters stated Elo's historical growth profile is very similar to Zebra's. He noted the $25 million in synergies includes cost savings and go-to-market benefits that could help achieve the higher end of the 5-7% growth target.

Brad Hewitt asked about future incremental margins for the contractor segment, specifically the volume recovery needed to reach a 29%-30% margin zone (excluding Corab). He also sought color on the White Knight business's growth this year and potential changes to its medium-term growth algorithm due to proposed sectoral tariffs on semiconductors.

Answer

CEO Mark Sheahan stated that minimal volume recovery is needed for contractor margins to return to 29%-30%, as pricing will offset tariffs and volume brings factory efficiencies. He confirmed White Knight has recovered after a two-year downturn, acknowledging its cyclical nature, but is not yet at peak levels. He noted favorable macro trends and expected Graco to gain market share, without commenting on specific revenue or tariff impacts.

Brad Hewitt asked about the incremental margins for the Contractor segment going forward, how much volume recovery is needed to reach 29-30% margins (excluding Corab), and for more color on the growth perspective of the White Knight business this year, including any potential changes to its growth algorithm due to proposed sectoral tariffs on semiconductors.

Answer

CEO Mark Sheahan stated that not a lot of volume is needed for the Contractor segment to return to 29-30% margins, as pricing will help offset tariffs, and even small volume increases will drive factory efficiencies. Regarding White Knight, he confirmed it has seen a comeback after a two-year investment lull, though not yet back to peak levels, and the macro outlook for semiconductor investment remains favorable despite potential tariff impacts. He did not provide specific revenue figures for White Knight.

Brad Hewitt of Wolfe Research LLC asked how Graco's contractor segment outlook aligns with paint volume forecasts from channel partners and questioned the change in guidance regarding the previously mentioned revenue headwind from China.

Answer

President and CEO Mark Sheahan stated their outlook is global and broader than just paint, with easier H2 comps supporting their forecast. CFO David Lowe agreed the market is 'choppy.' VP & Controller Christopher Knutson explained the China headwind was removed from the outlook due to a market recovery, particularly in powder coating, though it remains a disclosed risk factor.

Brad Hewitt of Wolfe Research asked how Graco's contractor volume expectations align with a key customer's negative outlook on paint volumes and inquired about the status of the previously mentioned revenue headwind from China.

Answer

CEO Mark Sheahan noted Graco's forecast is global and covers a broader product range than just paint, including spray foam and protective coatings, and benefits from easier comps in the second half. VP & Controller Christopher Knutson clarified that while China exposure remains a risk factor in the 10-Q, it is no longer considered a headwind in the active outlook due to a market recovery, particularly in powder coating.

Brad Hewitt of Wolfe Research LLC asked about the implied organic sales deceleration in the Q4 outlook and questioned if the Advanced Technology Solutions (ATS) segment's margin is at a normalized run-rate in the 24-25% range.

Answer

EVP & CFO Daniel Hopgood explained the Q4 year-over-year comparison is tougher for some systems businesses, which mutes the growth rate, but noted the guidance implies a modest sequential sales increase from Q3. President & CEO Sundaram Nagarajan stated that a 24-25% EBITDA margin for ATS seems reasonable at current revenue levels but cautioned that the segment requires significant ongoing R&D investment, which is a key factor in its cost structure.

Brad Hewitt of Wolfe Research, LLC asked for details on the Q3 guidance for organic growth and margins by segment, and what factors would prompt an acceleration of investments in the data center market.

Answer

CFO Mark Carano outlined the second-half outlook, projecting mid-teens growth for HVAC (two-thirds organic) with margin expansion, and ~10% organic growth for D&M with some margin compression from tariffs and investments. President & CEO Gene Lowe responded that the company is already 'feeling even more bullish' on data centers and is fully supporting growth, not throttling back investments.

Brad Hewitt asked for help understanding the building blocks for year-over-year accretion from the Svanohoi and Kesaria acquisitions into 2026. He also inquired about order activity trends in the short-cycle Industrial Process business through Q2 and into July.

Answer

CFO Emmanuel Caprais stated that both acquisitions are outperforming plans and guided that investors should expect around 100 basis points of margin improvement annually from acquisitions on average. CEO Luca Savi described Q2 short-cycle IP orders as the second-highest ever, with no unusual trend changes, noting that a slightly softer July is a typical seasonal pattern.