W W Grainger - Q1 2024

Transcript

Operator (participant)

Greetings. Welcome to W.W. Grainger First Quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to Kyle Bland, Vice President, Investor Relations. Thank you. You may begin.

Kyle Bland (VP of Investor Relations)

Good morning. Welcome to Grainger's First Quarter earnings call. With me are D.G. Macpherson, Chairman and CEO, and Dee Merriwether, Senior Vice President and CFO. As a reminder, some of our comments today may include forward-looking statements that are subject to various risks and uncertainties. Additional information regarding factors that could cause actual results to differ materially is included in the company's most recent Form 8-K and other periodic reports filed with the SEC. This morning's call will focus on results for the first quarter of 2024, which are consistent on both a reported and adjusted basis. As a reminder, we have included a daily organic constant currency sales growth metric within these materials to normalize for the divestiture of our E&R Industrial Sales subsidiary, which was sold at the end of 2023.

Definitions and full reconciliations of this and any other non-GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our earnings release, both of which are available on our IR website. We will also share results related to MonotaRO. Please remember that MonotaRO is a public company and files Japanese GAAP, which differs from U.S. GAAP and is reported in our results one month in arrears. As a result, the numbers disclosed will differ from MonotaRO's public statements. With that, I'll turn it over to D.G.

D.G. Macpherson (Chairman and CEO)

Thanks, Kyle. Good morning, and thanks for joining the call. 2024 started well. As we remain grounded in the Grainger Edge, we are focused on starting with the customer and staying focused on what matters most. I've seen this play out in several ways throughout the quarter. In February, we hosted the Grainger Show in Orlando, where over 10,000 of our customers, suppliers, and team members came together to showcase the products and solutions that Grainger offers. It remains a great opportunity to work together with our partners to solve customer problems. We've received great feedback on progress since the event. I've also had the opportunity to meet with a diverse set of customers from many industries. It has been great to see how the Grainger team continues to deliver value and further embed into our customers' operations.

During a recent visit to a musical instrument manufacturer, I had the chance to see how our team partnered with the customer to help them standardize their product portfolio to lower cost and improve efficiency. This included leveraging our strong supplier relationships and expanding our KeepStock solution to ensure they have the right products in the right locations. I also spent time with a large public health system, which was in the process of building a new hospital. Throughout the project, we supported their operations as they transitioned to the new facility, ensuring products remained readily accessible across the campus. By supporting this customer throughout the significant change, we deepened their trust in Grainger and allowed them to focus on their area of expertise, patient care, while we took care of their MRO needs.

Across all my visits, it's clear that we continue to show up well for our customers. Based on what I've seen, while each industry dynamic is different, overall demand for MRO products has remained soft, but generally steady to start the year. Inflation remains a talking point with customers and suppliers, and is turning out to be stickier than we originally anticipated heading into 2024. Dee will provide details in a bit. Moving on to our first quarter performance, you can see we started the year largely as expected, delivering another quarter of solid results. Total company sales were up 3.5% or 4.9% on a daily organic constant currency basis, with positive contributions from both segments.

In High-Touch Solutions, we continue to advance our five key growth engines as we leverage our technology and data assets to unlock further value for customers. Within the Endless Assortment business, we remain focused on acquiring new customers and improving repeat purchase rates across the segment, and we made solid progress here in the quarter. From a profitability standpoint, total company operating margin was down, as anticipated, to 15.8%, a decrease of 80 basis points over the prior year. EPS finished the quarter roughly flat versus prior year at $9.62. Beyond the P&L, ROIC remained strong at 42.9%, and operating cash flow finished at record levels, which allowed us to return a total of $360 million to Grainger shareholders through dividends and share repurchases.

Lastly, I want to mention that yesterday we announced a 10% increase to our quarterly dividend, marking the 53rd consecutive year of expected dividend increases, something we are very proud of. In addition, the Board refreshed our repurchase authorization, enabling the buyback of up to 5 million shares of common stock. These combined actions reflect our continued commitment to returning cash to shareholders through a balanced and return-focused approach. Overall, 2024 started off largely as expected, and the business continues to perform well. With this, we are reiterating our full-year 2024 guidance. We are set up to have a strong year of results for all stakeholders. I'll now pass it to Dee to go through the details.

Deidra Merriwether (Senior VP and CFO)

Thanks, D.G. On slide 7, you can see the high-level results for the total company, including 4.9% growth on a daily organic constant currency basis. The quarter played out as anticipated, despite tough comps, continued rebaselining of the Endless Assortment business, and impact from holiday timing in the period. Operating margins were down 80 basis points year-over-year, but finished largely as expected in the quarter. Gross margins were lower by 50 basis points as we lapped outsized favorability in the prior year period, and SG&A delevered 30 basis points as we ramped demand-generating investments to drive long-term, profitable share gains. In total, we delivered diluted EPS for the quarter of $9.62, up 1 cent over the prior year period and in line with our expectations to start the year. Moving on to segment level results.

The High-Touch Solutions segment continues to perform well, with sales up 3.4% on a reported basis, or 3.8% on a daily organic constant currency basis. Volume growth remained strong, which offset a slight contraction in price due to timing. All geographies saw growth in the period. In the first quarter, the U.S. continued to see strong growth with contractors, government, and healthcare customers. This growth offset slowing demand in other end markets, including manufacturing and commercial services, as well as the impact from holiday timing. Overall, demand remained soft but largely unchanged over the last few quarters. For the segment, gross profit finished the quarter at 41.8%, improving sequentially but below normal seasonality amidst a more muted pricing backdrop.

On a year-over-year basis, gross margin was down 60 basis points, primarily due to the timing of price-cost spread, along with the lapse of a 20 basis point one-time favorable freight adjustment in the prior year. These headwinds were partially offset by continued freight and supply chain efficiencies, which began in the first quarter of 2023 and are now fully normalized. While the quarter finished in line with our expectations on gross margin in total, we were a little more price-cost negative than anticipated, as the timing of price and cost is never perfect. As the year progresses, we expect price-cost spread will recover and finish the year closer to neutral. SG&A delevered 40 basis points as we continue to invest in our demand-generating growth engines, including marketing and seller headcount.

We will continue to stay disciplined with our spending and rigorous in understanding cause and effect, but feel it's prudent to invest through the cycle to gain share over the long term. Overall, these results position us well for another strong year within the High-Touch segment. Looking at market outgrowth on slide 9, we estimate that the U.S. MRO market, including volume and price, grew in the quarter 2%-3%, nearly all from continued price inflation. This indicates that the High-Touch Solutions U.S. business achieved roughly 150 basis points of market outgrowth in the first quarter in total. Similar to last quarter, this more muted quarterly outgrowth reflects the higher PPI-based price inflation than Grainger's first quarter price contribution.

As we've mentioned in the past, there is no perfect market measurement for our business, and when comparing a broader external metric of inflation to our MRO product mix, there can be noise, especially in quarterly periods. That being said, as D.G. alluded earlier, inflation has been stickier than we originally anticipated, and we're taking some corrective actions in the second quarter to ensure we adhere to our two core pricing tenets: maintaining market-relevant prices while ensuring price-cost neutrality over time. Importantly, on a pure volume basis, when looking at our volume contributions versus the growth in industrial production, our volume outgrowth is closer to 450 basis points, reflecting continued strong performance for our High-Touch growth engines. Moving to our Endless Assortment segment.

Sales increased 3.7% or 10% on a daily constant currency basis, which adjusts for the impact of the depreciated Japanese yen. Zoro U.S. was up 5.1%, while MonotaRO achieved 13.1% growth in local days, local currency. At a business level, Zoro saw continued strong growth from B2B customers who remained up year-over-year in the high-single digits. This helped offset continued declines with non-core B2C and B2C-like customers, which were down double digits year-over-year. We expect these B2C headwinds to subside as the year progresses. At MonotaRO, sales were strong from continued growth with enterprise customers, coupled with solid repeat purchase rates within their core B2B customer base.

On a reported basis, however, these strong results are nearly all offset by continued foreign exchange rate pressures as the yen sinks to near all-time lows versus the dollar. Operating margins for the segment declined 20 basis points to 7.9%, largely driven by gross margin favorability at MonotaRO from freight and supply chain efficiencies, which were more than offset by negative mix at Zoro as gross margins continued to normalize following the last few years of inflation. Overall, it was a good quarter for the Endless Assortment business. Now, an update on the remainder of the year. Overall, we've said Q1 played out much as we expected, and results align well within the guidance ranges we laid out at the beginning of the year. This has continued into April, with daily organic constant currency sales up 5.7% month to date.

This gives us confidence to reiterate our current year, our current full year 2024 guidance, which includes daily organic constant currency sales growth between 4% and 7% and EPS ranging between $38 and $40.50, up roughly 7% at the midpoint. On seasonality, top line comps get easier as we move through the year. Operating margins will dip down sequentially in the second quarter as gross margin moderates slightly and SG&A leverage declines as merit increases go into effect and marketing investments continue to ramp. With that, we expect modest year-over-year EPS growth in the second quarter, with earnings ramping from there in Q3 and Q4. Although we are maintaining our guidance ranges, I did wanna call out the increasing headwind we're seeing from foreign exchange rates.

As it stands today, the dollar to yen spot rate sits roughly at 155, well above the 144 we originally planned in January and still assumed in our current guidance. If rates remain at these elevated levels, this would cause roughly $140 million incremental headwind to our full year 2024 reported net sales guidance at an approximate $0.13 decrease to annual EPS. Overall, we're pleased with how the business is performing and remain confident in holding expectations for the year. With that, I'll pass it back to D.G.

D.G. Macpherson (Chairman and CEO)

Thanks, Dee. Grainger's ongoing success is made possible by our people, and I'm fortunate I'm routinely able to spend time with our frontline team members, and it's clear that they are deeply connected to our customers, working side by side to help solve their most challenging problems. I believe this commitment to our customers is because of the emphasis we put on building a culture where every team member knows that they can make a difference. Earlier this month, Grainger was named Fortune's Best Workplaces in 2024 for the third consecutive year. This is an exclusive recognition that honors companies with the best cultures and people, which is a perfect way to describe what we have at Grainger.

I'm confident the team will continue to keep working towards our goals and delivering on the things that matter most for our customers, team members, and all stakeholders in 2024 and beyond. With that, we will open the line for questions.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue, and for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please ask one question and one follow-up question. One moment while we pull for questions. Our first question is from David Manthey with Baird. Please proceed.

Quinn Fredrickson (Senior Research Analyst)

Yeah. Hey, good morning. This is Quinn Fredrickson on for Dave. First, good morning. Can you update us on you made some comments about taking some pricing actions? I think before you were saying 0%-1% price in High-Touch this year. Can you update us on that? And then just any gross margin implications from here?

D.G. Macpherson (Chairman and CEO)

Yeah. You know, I'll provide a few comments and then, and then, Dee can provide any details. As Dee mentioned, inflation has been a bit stickier than we expected. Originally, we thought inflation would be 0%-1%. It's likely to be 1%-2% at this point. That outlook is lower than the headline PPI index because, our, our industry specific factors are different than the PPI index, and that difference has contributed to lower market outgrowth the last few quarters. We do see these short-term disconnects from time to time. We saw it in 2022 as well, but they smooth out over time. We are a little late to judge the, the increase in prices this year, and so, we, we are taking action 5/1.

We price a 5/1 cycle, and that cycle is gonna correct and make some corrections. You know, I think that's well in motion and that's already basically executed and will start happening next week. I think importantly, when you strip out the lumpiness from pricing, our volume outgrowth has been very good, something like 400+ basis points. We continue to see nice volume growth and we think the pricing will correct. It's just a timing thing.

Quinn Fredrickson (Senior Research Analyst)

Thank you. That's, that's helpful, D.G. Maybe on the Endless Assortment segment, any color you can share just on that, the B2C portion? I guess, are you seeing that kind of progress as you would expect and still anticipating that inflecting positively in the back half of the year? Then obviously you reported that 10% segment growth even in spite of that. Any change to the 7%-10% constant currency growth assumption for the year?

D.G. Macpherson (Chairman and CEO)

No, we don't have any change. I think, you know, we will still have a bit of a headwind for consumers, be it B2C and B2C-like customers, through the second quarter. We think that will go away as the year moves on and that could become a positive. Generally, that's all built into the 7%-10%.

Operator (participant)

Our next question is from Nigel Coe with Wolfe Research. Please proceed.

Nigel Coe (Managing Director)

Great, thanks, guys. I appreciate the question. Obviously the yen, fairly small in the scheme of things, to be honest with you. I'm curious how that impacts potentially MonotaRO's margins, because I understand a fair amount of the product is imported into Japan from China and other places. Does that have any impact from a transactional basis as opposed to just translational, or does that $0.13, Dee, cover both transactional and translational?

Deidra Merriwether (Senior VP and CFO)

Yeah, I'll start with the first part of your question. The majority of MonotaRO's COGS are in the yen. They do have some U.S. denominated, but it's a much smaller portion of their COGS, and they've done a really nice job over the last several years of being able to pass on inflation through price to account for, you know, the disaggregation between the yen and the dollar. As it relates to, I think you kinda talked about when we, when we then consolidate the business, you have the tax effect that impacts us, and then we just end up really with, once you eliminate non-controlling interest, just have the translation risk. We generally, from a philosophical perspective, don't attempt to hedge, you know, translation risk because it's not real economic risk for us.

Nigel Coe (Managing Director)

Right. Okay, that's helpful. Then just to tie a bow on the second quarter, kind of color, I guess. Seems like sales growth might be a little bit better year-over-year, perhaps margins a bit more contraction year-over-year than 1Q. How does price-cost look, you know, in 2Q versus 1Q, in light of the pricing actions? Maybe just talk about how the price-cost develops from 1Q-2Q. I know there's a lot there, but any more color on 2Q would be helpful.

Deidra Merriwether (Senior VP and CFO)

Sure. Yeah. I think the first two statements you made were correct. As we look at the balance of the year, starting in the second quarter with the actions that D.G. noted that we are in the process of taking, we expect price-costs to continue to improve from here. We expect to end the year close to price-cost neutral. The team is working really hard, making sure, you know, that they're following our two core tenets, which is, first and foremost, remaining price competitive, but then also looking through our assortment and estimating the continued cost increases that, you know, we're going to experience, that we can time that as close as possible as we can, so that we can end up price-cost neutral.

Operator (participant)

Our next question is from Tommy Moll with Stephens Inc. Please proceed.

Tommy Moll (Equity Research Analyst)

Good morning, and thank you for taking my questions.

D.G. Macpherson (Chairman and CEO)

Good morning.

Deidra Merriwether (Senior VP and CFO)

Good morning.

Tommy Moll (Equity Research Analyst)

D.G., I wanted to start on the core, B2B Zoro customers, where I think you said from a customer perspective, you were up high singles this quarter. What can you tell us about some of the initiatives internally, where you've redoubled efforts to continue to drive that stickiness and repeat transaction rate among that cohort, and how are those initiatives progressing?

D.G. Macpherson (Chairman and CEO)

Yeah, they're progressing well. Most of the focus is on so Zoro has always been a very good acquirer of new businesses, and they continue to do that well. We, you know, we look at the Japanese business and Zoro, when we compare, we compare notes, and the repeat business has been lower historically at Zoro than it's been at Japan, but we steadily increase that. That is a lot of sort of marketing science, looking at what to present to customers after the first order, how to understand who those customers are, presenting the right products and the right offers after we get that first order.

Most of it is around marketing actions that we're taking, and the Japanese team and the U.S. team are working very closely to make sure we transfer best practices and drive repeat rates up. We've seen good results, probably the last six months, actually, in terms of improved repeat rates.

Tommy Moll (Equity Research Analyst)

A follow-up on inflation, which you've hit on a couple times here, and it sounds like you're gonna address some of the price-cost issues in early May. What are the factors that changed year to date? Was it more on the cost input side, coming in a little hotter than you expected, or what did you see out there?

Deidra Merriwether (Senior VP and CFO)

I would say it was a couple things. One, you know, D.G. talked a little bit about, like, misjudging the path of inflation here. You know, we started to lower some prices at the end of last year, and so probably did that a little too quickly. Then when we started and assessed the 2024 increases in Q1, probably a little softer there. We have a range of outcomes that we attempt to plan for, you know, as everyone else, and we're looking at market outlooks that are continually changing. You know, it's something that we have to deal with every year, and we work really hard to get, you know, close to—as close as possible as we can to something that, you know, we could definitely execute and hit.

We also have a range of COGS outcome or cost outcome from our suppliers. I would say the second thing is some of those cost outcomes from the range that we set is coming in a little bit higher than what we had anticipated.

Operator (participant)

Our next question is from Jacob Levinson with Melius Research. Please proceed.

Jacob Levinson (Director and Associate Director of Research)

Morning, Deidra. Dee.

D.G. Macpherson (Chairman and CEO)

Good morning.

Deidra Merriwether (Senior VP and CFO)

Good morning.

Jacob Levinson (Director and Associate Director of Research)

Just on the investment that you folks are making, I seem to see the Grainger ads everywhere these days, but can you give us a sense of where you're spending the money? Is that, is there any change in the rate of change, if you will, in those investments, or is this just something you've been doing pretty consistently? Is there some sort of opportunity where you see a chance to put a little bit more money to work. Yeah, I'll leave it at that.

D.G. Macpherson (Chairman and CEO)

That's, I would say that it's all planned. There hasn't been any change in the path. You know, we invest in many ways, I'd say, but from a cash perspective, supply chain investments, you know, we've talked about the new building in the Northwest and Houston, those are in full swing. We also invest in technology. That's the other primary investment we make from a cash perspective. Then from an expense perspective, you know, marketing is a big part of it. We invest up and down the marketing stack. We invest in advertising, we invest in paid search, of course, and then we invest in what we call mid-funnel, which is more targeted direct marketing with our customers.

What I would say is that we're constantly evaluating the returns on those and making minor tweaks, but what you're seeing to date is just normal planned spend.

Jacob Levinson (Director and Associate Director of Research)

Okay, that makes sense. Just on a different topic, and you folks have been a pretty consistent repurchaser of your own stock for a very long period of time. The shares have obviously had a phenomenal run in the last couple of years. Does that, and you've got a potentially under-levered balance sheet, does that change the calculus at all in how you're thinking about what are the external capital allocation priorities here?

Deidra Merriwether (Senior VP and CFO)

We expect to maintain the course on our capital allocation strategy. We feel it's been working well for the investment community. It helps us maintain a good level of financial flexibility, but you know, we're targeting to return any excess cash, you know, after we have invested to drive long-term growth back to shareholders in the form of the dividend and share repurchase. Those two vehicles, we feel are both efficient for us and efficient for shareholders.

Operator (participant)

Our next question is from Christopher Glynn with Oppenheimer. Please proceed.

Christopher Glynn (Industrials Equity Analyst)

Yes, thanks. Good morning. Was wondering about the utility and commercial services verticals down mid-single digit, if you could provide any complexion there, particularly maybe in the utility side. Seems like that should be a little stronger?

D.G. Macpherson (Chairman and CEO)

Yeah. What I would say is that they're both relatively small for us, and so in utilities, in particular, there's a single customer that has had some challenges, and that has had a big impact there. It isn't really a sector. We don't play big enough in utilities to really be a sector barometer. I would say it's sort of noise there.

Christopher Glynn (Industrials Equity Analyst)

Okay, great. Then, wanted to ask about the medium customers parallel to, I think, it was Jake's question on the small. You know, you're, you're also developing some regional and vertical models there to support long-term penetration and accelerate the, the, the performance there relative to the, the large customers, just, just given the share differentials and lower penetration with medium. Curious for kind of a, a diagnostic update on, your action plans there with the medium and how you see that unfolding?

D.G. Macpherson (Chairman and CEO)

I mean, a lot of the things that we're doing around the business, certainly we have a supply chain that's built very effectively for both large and mid-sized customers. We have a lot of our resources attached to large customers, all of our sales force and our inventory management teams and some of our support teams, and that is the lion's share of our revenue. Since we made the price change in 2017, we've recaptured virtually all of what we had lost in mid-size customers, and certainly, the marketing initiatives have been helpful for that. The merchandising initiatives have been helpful for that in terms of helping us regain that share.

We continue to grow faster with mid-size customers than large, and we expect to do so for a long time, and there's a number of initiatives that we have that are supporting that. Although I would say most of our initiatives raise all boats, and we do a lot of things that sort of scale across the entire business.

Christopher Glynn (Industrials Equity Analyst)

Got it. Thank you.

Operator (participant)

Our next question is from Deane Dray with RBC Capital Markets. Please proceed.

Deane Dray (Managing Director and Multi-Industry and Electrical Equipment Equity Analyst)

Thank you. Good morning, everyone.

D.G. Macpherson (Chairman and CEO)

Good morning, Deane.

Deane Dray (Managing Director and Multi-Industry and Electrical Equipment Equity Analyst)

Hey, I joined a little bit late, so I apologize if you had gotten any of these specifics, but I know you called out the timing of the holiday. Just, could you size that for the Easter holiday? Was there any impact on January weather that you could detect?

Deidra Merriwether (Senior VP and CFO)

Hi, Deane. Yeah, let me start with the last one, which is January weather. I will say the impact of January weather for us, you know, we started off a little slower than normal, then it impacted the quarter a little bit, but by the time we got to the end of the quarter and started to ramp up, you know, it's really immaterial for the overall quarter. Then moving to, you know, I think you're referencing, like, the Good Friday holiday. It was about $10 million impact for us in March. You know, we laid out where we're at, month to date, up 5.7, so we feel like we're in pretty good stead, you know, starting off for the second quarter.

Deane Dray (Managing Director and Multi-Industry and Electrical Equipment Equity Analyst)

That's real helpful. Then, just second question, any change in the outgrowth dynamics, either what you saw this quarter and expectations for the year?

D.G. Macpherson (Chairman and CEO)

No, I don't think there's any change in outgrowth expectations. We talked earlier, if you weren't on about the fact that, you know, price in our market's been a little lower than PPI. Sometimes the broad metrics may not track exactly to our market, but that evens out over time. Our volume growth has been very strong through the quarter, and we're taking action to improve the pricing environment starting May 1. I think really there's, you know, we don't think there's really any change to the dynamic.

Operator (participant)

Our next question is from Chris Dankert with Loop Capital Markets. Please proceed.

Christopher Dankert (Senior Equity Analyst)

Hey, morning. Thank you. Apologies if I missed it, but on the step up in SG&A in the first quarter here, was there anything one-time there? Maybe just if you could walk through some of the moving parts for that kind of drove that step up?

Deidra Merriwether (Senior VP and CFO)

Yeah, no one-time items to call out in nature. I think as, you know, we provide color and provide the guide, we've been pretty consistent in noting that as we move through the year, we expect to continue to invest in demand-generating growth engines. A lot of the step up in the quarter was investing in the areas that D.G. kind of called out a couple questions ago. Sorry if you missed that, like, marketing and our investments, you know, and capacity, those that kind of fall into the expense line versus the marketing line. I will say that, you know, we are very diligent in our spending if it is what we classify as non-core, which is things that are not demand generating, and those costs were fairly flat in the quarter.

We intend to help those teams invest while they grow. They have to continue to focus on growing much lower than sales.

Christopher Dankert (Senior Equity Analyst)

Understood. Thanks for the color there. Then just any kind of update on the development and deployment of that customer information tool and kind of how that's been impacting things?

D.G. Macpherson (Chairman and CEO)

Yeah, I mean, so we've been on a several-year journey to improve our customer information. That's what I would say is customer information in our market is really messy. There isn't clean data sources that tell you who customers are and what they do and how many team members they have and that type of thing. We've been building our own, what I would say has been super helpful with some of the seller coverage changes we make, we've made. We're now building in some of our marketing processes, so it has a lot of tentacles in the business, and we're excited about the ability for the tool that's been built to be leveraged to improve our ability to serve customers.

Operator (participant)

Our next question is from Patrick Baumann with JPMorgan. Please proceed.

Patrick Baumann (Managing Director and Senior Equity Research Analyst)

Oh, hi, good morning. Dee, maybe a quick follow-up on April. The 5.7, just wanted to make sure I understood. That excludes divestitures and FX, right? Then, was so you said $10 million impact from holiday timing in March. I guess that's like a percent of sales, maybe? I don't know. Was there something like that also benefiting April in terms of timing?

Deidra Merriwether (Senior VP and CFO)

Well, you would expect it to flow, you know, into April, to the extent that we could pick that up, yes. The answer is yes to your first question, because I think you noted it, it excluded FX.

Patrick Baumann (Managing Director and Senior Equity Research Analyst)

Okay. Yeah. That's organic? Yes. Okay, sorry, I missed that comment.

Deidra Merriwether (Senior VP and CFO)

Organic.

Patrick Baumann (Managing Director and Senior Equity Research Analyst)

Okay. Great. Then, my follow-up is on SG&A again. If we get, you know, later in the year and the top line isn't, you know, picking up from where we started the year, what's like the ability or desire to kind of toggle that SG&A growth back? I know you mentioned that you're diligent on spending if it's non-core, but what's your willingness to toggle back on some of the investment spending if growth, you know, doesn't pick up as the guidance expects?

D.G. Macpherson (Chairman and CEO)

Yeah, thanks. You know, what I would say is that we are very focused on productivity improvements throughout the business. I think we are seeing productivity improve. You know, the last few years have been a bit odd, to say the least, in terms of some of the challenges that everybody's had to deal with. We have really sort of refocused our attention on getting better, getting more productive in every part of the operation. We're going to continue to do that. In terms of demand generation spending, I think you're asking specifically if it's worth spending in good times, it's probably worth spending in bad times, too. We wouldn't typically pull back those things.

We think that, you know, we exist for the long term, and we're trying to win over the cycle, not just in the down cycle. We would expect to not have dramatic changes in what we spend, but we do expect to continue to drive productivity.

Operator (participant)

We have reached the end of our question and answer session. I would like to turn the conference back over to D.G. for closing remarks.

D.G. Macpherson (Chairman and CEO)

All right. Thanks, thanks for joining, everybody. Really appreciate it. You know, I would, I would just highlight that in general, I would say everything in the quarter was as we expected, and we feel very confident in the path we're on. There's not a lot of new news in this quarter, but we do feel good about the path. We do feel good about our ability to gain share, to become more productive, and to make sure we remain price-cost neutral over the long term. All things point to really good results for the year. Appreciate the time. Thank you.

Operator (participant)

Thank you. This will conclude our conference. You may disconnect your lines at this time, and thank you for your participation.