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Graco Inc. (NYSE:GGG)

Q3 2010 Earnings Call

October 21, 2010 01:30 pm ET

Executives

Caroline Chambers - VP & Controller

Pat McHale - President & CEO

Jim Graner - CFO

Analysts

Charles Brady

Terry Darling

Kevin Maczka

Matt Summerville

Christopher Wiggins

Operator

Good morning and welcome to the third quarter 2010 conference call for Graco Inc. If you wish to access the replay for this call, you may do so by dialing 1800-406-7325 within the United States or Canada. The dialing number for international callers is 303-590-3030. The conference ID number is 4370547. The replay will be available through October 24 of 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 the result of various risk factors, including those identified in item 1A of and 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 of 2010. And I now like to turn the conference to Caroline Chambers, Vice President and Controller, please go ahead.

Caroline Chambers

Good morning everyone. I am here this morning with Pat McHale and Jim Graner. I will 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 of 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 a $190 million for the quarter as compared to the prior year. Sales increased in all divisions and regions with strong growth continuing 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 rate.

Material cost remains 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 cost 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 bonuses provisions in the third quarter similar to the second quarter of 2010. For the full year we expect that cost and expenses related to incentive 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 to limitations in recent tax [bar] ruling. The year-to-date tax rate was 32% as compared to 31% last year. We expect the full year tax-rate to be approximately 33%. The federal R&D tax credit has now been renewed for 2010 and no benefit is included in the current rate. In future quarters without changes in tax law we expect to rate a 34% to 35%.

Year-to-date cash flow from operations was $62 million as compared to a $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 days of sales outstanding. Primary usage 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 quarter, with unused credit lines of a $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 will turn it over to Pat for additional comments.

Pat McHale

Good morning, I will start off by giving some color to our revenue performance during the quarter. I'll begin with Europe.

Sales in Europe were up 22%, 32% at consistent exchange rates versus the third quarter of last year. Sales increased solid double digit in Western Europe, Eastern Europe, the Middle East and Africa.

Contractor equipment sales were strong despite difficult end market conditions in many countries. Of the 30% increase 41% at consistent exchange was driven largely by new product. Our base business in Europe contractor, excluding new products did increase at 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 has 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, our 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 outperformed 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 2011plans reflect significant incremental investment for commercial people, customer support and training.

Now on to Americas where we also saw a 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 polyurea 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 products. Excluding new products, 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 home center business is essentially flat.

A switch in the margins, gross margins were solid at 55% for the quarter, it 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 has significantly improved compared to last year's third quarter. Operating margins in contractor are similar to last year as cost 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 in 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 upfront 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 industrial economy will continue to recover and combine with our investments and 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 in 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 effect new product in contractor sales in Q4 as distributors will likely focus on selling down existing stock and delay 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 our prepared remarks, I now ask the operator to open the question to Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Charles Brady. Please go ahead.

Charles Brady

Could you talk about the growth you saw from new products in the quarter, particular on contractor? Was any of that a catch up of stuff that was not fulfilled in prior quarters?

Pat McHale

Well our backlog overall decreased $3 million. I will let Jim chime in on the contractor backlog if he has got it.

Jim Graner

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

Charles Brady

So your comments in your 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 until the normalized delivery?

Pat McHale

Really it has more to do with end-market conditions and what we think our channel partners are likely to do in the fourth quarter. 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 next couple of months and they are going to sell down the inventory that they have. And they are going to try to not do a lot of re-ordering until the first quarter.

So I am still confident about what's going to happen with the products beginning in the first quarter. But I've got some reservations about how I think our channel partners are going to play inventory out through the end of year.

Jim Graner

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

Charles Brady

And just on industrial equipment, the incremental margins in industrial this quarter year-on-year looked especially strong. Is there anything in particular that's driving them? I see the break out on your slides, but would you expect that kind of incrementals to continue into 2011?

Jim Graner

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

Operator

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

Terry Darling

Pat wondering if maybe you can talk a little bit more about that fourth quarter US Contractor expectation, the struggling between Jim's comment, hey its 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. And if we go back and you try to triangulate what normal seasonality is, if you go back to the good days its down 5% or 10% sequentially, and then '07 when people really started to pull the horns in your were down 25% sequentially. So I don't know if you could help us narrow the gap there?

Pat McHale

You know I can't give you any numbers, I don't have any facts on it. Its just really my feeling based upon talking to our sales people 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 will be a little better than its turned out to be. And so I think that optimism has moved out here. And doing like those channel partners do they manage their inventories well, I just think they're going to be a little bit conservative. There is a normal fourth quarter decline. 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.

Terry Darling

And what would you expect out of the non North America business for contractor in the fourth quarter?

Pat McHale

Growth.

Terry Darling

Sequentially you are talking about.

Pat McHale

Growth over the last year. I haven't checked on that, looked at the sequential piece, but I expect that we should have a decent quarter in Europe and Asia.

Terry Darling

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

Jim Graner

Sure. First of all with respect to pension we are seeing a nice increase in assets this year through September. In addition to the $10 million voluntary contribution we made in September we have some nice gains on our positions. So that would give us a tailwinds. One issue of course is with decline in discount rates our [PVO] is going to go up. We think thus 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.

But overall I would expect pension to be a little bit of a tailwind with respect to margins in the segments as I mentioned earlier industrial, we expect a little bit more absorption to fix 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 cost with respect to these new products.

Both in the second and third quarter we had some extra cost for air freight and our first production of a higher volume unit. We expect those costs to be a bit smaller with each quarter and then we have some automation expectations to be implemented in the first and second quarter. So again some tailwind in the contractor period.

Terry Darling

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

Jim Graner

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

Terry Darling

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

Jim Graner

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

Operator

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

Kevin Maczka

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 budding up against some kind of ceiling there as volumes continue to improve?

Jim Graner

Well our measurements for our unabsorbed 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 its really this measurement that we use for accounting purposes. We got a couple of 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 we were fairly close to capacity. And in the lubrication again on a year-to-date basis we have about 4 or 5 percentage points yet to get to full capacity.

Kevin Maczka

And in industrial are you using that surge capacity already?

Jim Graner

We are not.

Kevin Maczka

In terms of the product development costs and some of these launch costs that are I guess somewhat onetime. 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?

Jim Graner

Well on this specific product that I was addressing in the contractor segment we should see improved gross margins. We should see as a result of 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 end-market and those won't be made until the first quarter.

Kevin Maczka

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

Jim Graner

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

Kevin Maczka

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?

Jim Graner

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

Kevin Maczka

For price.

Jim Graner

For price, correct.

Operator

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

Matt Summerville

Couple questions. Back to new products, is there anyway for you guys to quantify? You sort of went over it in contract. 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?

Pat McHale

Well I'll take your second question first, but in terms of the dollar magnitude of 2011 versus 2010 new products it's a little bit hard to say. We've got 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 is 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 homerun 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 that you wouldn't really get a very good view of the underlying business without it. So I am going to avoid getting into details about the exact sales, the new product and the other divisions.

Matt Summerville

One follow-up. With regard 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 target in 2011 and not exceed those growth rates like you have had this massive outsized growth this year, obviously up a lower base. What happens to that incentive comp expense next year, how should we be thinking about that?

Caroline Chambers

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

Jim Graner

And I would say that on a normalized basis if you got back to what we planned to go which I will say is sub 10% its in the $8 million to $9 million kind of a range.

Operator

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

Christopher Wiggins

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

Pat McHale

Yes

Christopher Wiggins

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

Pat McHale

Well you know most of our product lines don't lend themselves to customer 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 its unlikely that we would 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 payback in the categories that we're targeting.

So we haven't made any decisions on that, but certainly we are taking a look at the results and we will probably do some more looking at that as we go through the key part of the painting season which really starts in the [munch] kind of timeframe.

Christopher Wiggins

Just one final one. Have you been able to, I guess looking at kind of 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 as opposed to replacing with new equipment and potential pent-up demand building?

Pat McHale

From my prospective the thing seemed to be fairly normal. It did look a little squirrelly there from, I'll call it the late '08 through the middle of '09 but other than that nothing really stands out in my view.

Christopher Wiggins

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 towards historical ranges?

Pat McHale

Quite 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 million. And we are still very confident we can do that. But definitely we need volumes to return more to the kind of '07 '08 historical levels for that to happen.

Operator

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

Unidentified Analyst

Could you talk a little bit about the increase in volume which is driving that demand?

Pat McHale

Well as I mentioned in my comments we are finally seeing some life in vehicle services segment. Its really the first time this year that we have had a quarter where we're seeing double digit growth. We have been seeing that in our other segments.

So again from view although the construction markets are bad and unemployment is bad we are feeling definitely like there is some recovery going out. And I think we are starting to see that in our vehicle services segment as well. People are just a little more willing to invest than they were a year ago when things stopped so quickly.

So it is more or less broad based. I can't say that it is all happening in municipal or in fleet. We are seeing just a general increase in activity across our product lines and across our end-markets here in the US.

Unidentified Analyst

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

Pat McHale

Great extent there is not share to take because there was handheld consumer products, very cheap ones but there was really no handheld professional product. So to extent that we are getting sales it is really not cannibalizing any of our existing products. Its not really taking share from anybody, it is really a unique product category out there.

In terms of the sell through, it's a little bit early from me to say. I'm on a whole loss talking about sell through probably until summertime next year. Again we launched late, we didn't start shipping to our channel partners until the middle of May. And then on consumer side we didn't start shipping, I think until late August or early September.

So there are thousands and thousands of them that are in end user's 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 its too early to make a judgment on that.

Unidentified Analyst

Then why do the TV advertising and maybe a seasonally weak time of the year now, why not just hold back and wait till spring?

Pat McHale

Yes, we agonized over that decision trying to figure out if we should wait till spring or not. When you have a hot product that doesn't have any competition in the marketplace one of the things that you want to do, is you want to try to tie up the channel. And you want to try to create that vision with the end users that your first with the best.

So overall 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 thirty days.

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

Operator

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

Terry Dialing

I just 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 much greater way into international business which presumably it's got a little bit higher working capital requirements and just how we should think about that as volumes come back in 2011?

Jim Graner

You did hear right Terry that we expect inventories to stay flat for the quarter. 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 also is in support of our new product launch and the supply chain. You are 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 are pleased with our performance. Our days of sales and receivables are lower this year than last year. So I am pleased to see the growth in the number because that represents the absolute growth in sales. And again we are happy with the performance on that side. We think we are at a sustainable level now for inventory, hopefully through the year end 2011 as well as 2010. We will see some seasonal peaks from this point forward.

Terry Dialing

Again don't you think so structurally with the higher international waiting I think it used to be kind of a low to mid 20% range working capital sale. Should we think more kind of mid to upper 20% range on a normalized basis with kind of a model as it fits now?

Jim Graner

I would say in the mid 20s.

Terry Dialing

Okay and then does that [dub tails] into kind of discussion on usually cash flow. When I see the step up in buyback, can we talk a little bit about your thinking on that going forward?

Jim Graner

Well we saw an opportunity this summer here with what I refer 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 count flat.

Terry Darling

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

Jim Graner

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

Terry Darling

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

Jim Graner

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

Operator

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

Matt Summerville

I had 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. What are you seeing sort of in 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 what does the trend look like for you at both home depot and lows over the last couple of quarters?

Pat McHale

I don't want to talk specifically about any individual customer. I can tell you that we've got our, I will call tradesmen, our 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 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 home centers like the paint channel will be cautious with inventory stocking in the fourth quarter. And then I would expect them to be more aggressive with inventory stocking going into the first quarter.

Matt Summerville

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

Pat McHale

Yes, it is interesting we spent a lot of time the last couple of quarters trying to figure that out. And really when you take a look at our business it is been pretty dog on even on the industrial side, really regardless of product line and regardless of region, and regardless of the likely use of the product we sell to distribution, so I don't have a report that tells me what market it went into. But we have 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 normalish global industrial recovery going on. And certainly we are seeing more in the developing markets than we are in the developed, but even there the developed markets in Western Europe and the US on the industrial and now on the loop side or not doing too bad.

So it is nothing really that stands out to me, believe it or not.

Matt Summerville

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

Pat McHale

You know from the best that I can tell that's pretty stable, and that I'd expect sell in and sell out to be similar. And 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 sales have reflected sell through.

Operator

And as 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.

Pat McHale

All right we'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 developing markets look nice for next year and that with all of our strategic growth initiatives that was got going on we do believe that we're going to see growth in all of our divisions and in all of regions for 2011. So we'll go back to work and thanks again.

Operator

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

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