Episode Transcript
[00:00:03] Speaker A: Welcome to INA Insights, where prominent leaders and influencers shaping the industrial and industrial technology sector discuss topics that are critical for executives, boards and investors. Ina Insights is brought to you by Ina AI, a firm focused on working with industrial companies to make them unrivaled. Segment of one leaders to learn more about Ina Aihdev, please visit our website at www. Dot Ina DoT AI.
[00:00:40] Speaker B: Good Morning and welcome to another episode of our Titanium economy podcast series hosted by Ina AI today. Our guest is Mark Sheehan, CEO of Greco.
Mark has been with Greco for nearly 30 years, serving in numerous leadership roles before becoming CEO in June 2021. His career journey at Greco includes roles such as chief financial officer, vice president and general manager of the Applied Fluid Technologies division, and chief administrative officer.
He also brings experience from his time as a senior tax manager at KPMG and holds degrees in business and law.
Founded in 1926, Graco Designs, manufactures and markets systems and equipment that handle fluid and powder materials serving diverse industries such as construction, automotive, industrial machinery, electronics, oil and gas. Greco's products help customers solve complex manufacturing problems, increase productivity, improve quality, conserve energy, and reduce costs.
Mark, we are excited to explore about Greco's innovations and future directions today with you. A very welcome to our podcast.
[00:02:03] Speaker C: Certainly thank you for inviting me. Appreciate you're giving me the time.
[00:02:08] Speaker B: Perfect. Mark, let's get started by you giving us an overview of Greco, including its core mission, key products, and the primary markets you serve.
[00:02:18] Speaker C: Sure.
Graco makes products that move materials that customers really care about.
[00:02:24] Speaker D: These are typically expensive materials. They're involved in critical applications.
[00:02:30] Speaker C: In many cases, they need to be conditioned, pressurized, heated, mixed precisely, and dispensed accurately. We're organized into three different reporting segments, contractor and industrial, and process.
The contractor segment really represents about 45%.
[00:02:50] Speaker D: Of our global turnover.
[00:02:51] Speaker C: The segment we offer sprayers that apply paint on things like walls and structures, ranging from customers that are professionals to do it yourselfers. We also have specialty equipment that's used to apply texture onto walls, ceilings, highly viscous coatings on things like roofs, markings.
[00:03:12] Speaker D: On roads, parking lots like fields, etcetera.
[00:03:16] Speaker C: We also have a bunch of two component systems that are used to spray polyurethane foam, which is used for insulation and polyurea materials.
Our industrial segment is about 30% of our sales and that includes both industrial.
[00:03:33] Speaker D: And the powder divisions. The industrial segment has equipment that is.
[00:03:38] Speaker C: Used to apply liquid finishing in places like factories, and then the powder coatings.
[00:03:43] Speaker D: Is also in that same segment.
[00:03:45] Speaker C: And we have a group that is focused more on sealants and adhesives and.
[00:03:50] Speaker D: Composite materials that are used in bonding a lot of different things that you would find inside of a factory.
[00:03:56] Speaker C: And then lastly is our process group. Our process segment was about 25% of our sales last year, and that includes pumps that are used to move all different types of chemicals, oils, natural gases.
[00:04:10] Speaker D: Waters, waste water, petroleum, in and around factory spaces.
[00:04:14] Speaker C: So it's a very diverse company with a lot of different end markets and.
[00:04:20] Speaker D: A lot of different product categories.
[00:04:22] Speaker B: Got it. Got it. And Margreco has a long history dating back to 1926. Right. How do you balance maintaining the company's legacy while driving innovation in today's rapidly changing market?
[00:04:39] Speaker C: Yeah, it does go back to 1926, actually, right here in Minneapolis, where two brothers were working as a parking lot attendant at a ramp in downtown Minneapolis, and it got really cold, and they couldn't move the grease by hand anymore.
[00:04:52] Speaker D: So they developed an air operated grease gun.
[00:04:55] Speaker C: So the company was really founded on innovation, and it started that way.
[00:04:59] Speaker D: And it's really evolved over the decades. Almost 100 years old now.
[00:05:04] Speaker C: So the historical focus has always been driving innovation that serves customers, makes their lives easier, solves problems for those customers. And over the decades, we've done a nice job at the company, reacting to.
[00:05:20] Speaker D: The changing requirements of our customers. I guess the automotive industry would be a good example of that.
[00:05:25] Speaker C: Wherever we started out by changing oil in vehicles, then we moved to working in the factories to help paint automobiles. Then we moved to helping automotive manufacturers bond different areas of the car, glue different things in, create sealing of different areas in the vehicle. And now we're actually helping those same manufacturers with manufacturing batteries for electrical vehicles.
[00:05:54] Speaker D: So, over time, as our customers needs change, we try to adapt and change with them.
[00:05:59] Speaker C: We've also been able to react to.
[00:06:01] Speaker D: A lot of the changes in the materials that we dispense over the years to simplify it.
[00:06:07] Speaker C: More precision is needed today as the.
[00:06:10] Speaker D: Materials become more expensive and the manufacturers have come up with a bunch of new specialty applications every time they come.
[00:06:18] Speaker C: Up with a new material or a.
[00:06:19] Speaker D: New application, that really creates an opportunity for us to go out, create a new product to sell to those customers.
[00:06:26] Speaker C: We have a team here of engineers that's hungry for innovating. We're always striving to be better. It's extremely rewarding to be a part of such a dedicated group of people who come here every day to make.
[00:06:38] Speaker D: The lives of our customers better.
[00:06:40] Speaker B: Fascinating. And Mark, you mentioned how as the materials changes, you also have to come up with new, more precise technologies to move that material. In that respect, assume it has been also changing from the competitors standpoint. So how has the competitive landscape changed in this industry? And how has Greco managed to stay ahead of the curve with its innovation?
[00:07:05] Speaker C: Yeah, for sure. One thing I would say is that we serve niche markets. So these are not huge markets. But we do have many strong global and local competitors depending upon the niches that we're in. There is not one other global manufacturer.
[00:07:22] Speaker D: That covers all of the end markets that Graco does.
[00:07:25] Speaker C: But if you look at any particular.
[00:07:27] Speaker D: Product category or any segment, you could find a large multinational global competitor or a small regional competitor that we're up against.
[00:07:36] Speaker C: I would say that they're good competitors. Some of them compete on price, some compete on their nationality or their brand, some on technology, some on quality. We try to do all those things by being the highest quality, lowest cost of ownership and best customer service and technical support company in the markets that we're in. We stay in front by consistently innovating, which leads to more applications and a.
[00:08:02] Speaker D: Higher return on investment for our customers.
[00:08:05] Speaker C: We have a global distribution channel that we serve customers around the world. So when you're looking at multinational companies that have manufacturing operations around the world, they like consistency. And being able to know that there's.
[00:08:18] Speaker D: A Graco product and a Graco distributor nearby is important to them.
[00:08:23] Speaker C: Our distributors are loyal. They're trained on our products. They carry inventory of parts and accessories.
[00:08:29] Speaker D: And they're co located with our customers, which we think is important.
[00:08:33] Speaker C: Our distributors also have dedicated sales personnel and technicians that get up every day. They look for opportunities to sell our.
[00:08:40] Speaker D: Products and to serve those customers around the world.
[00:08:45] Speaker B: Sounds great. And Mark, then it's not a surprise, given all of that, that Greco stock is at an all time high. Right. And has outperformed s and P 500 in total returns over the last ten years.
What do you think have been some of the key drivers of this success?
[00:09:04] Speaker C: Well, I'm certainly not an expert when it comes to stock price dynamics. But what we do as an organization.
[00:09:10] Speaker D: Is clearly important to creating a larger.
[00:09:13] Speaker C: And more profitable company.
[00:09:15] Speaker D: Over the decades that I've been here.
[00:09:17] Speaker C: We have a strong organic growth profile as a business. We target 10% top line growth through a cycle. And we expect to get two thirds of that growth organically. And we've done a really good job.
[00:09:29] Speaker D: Of achieving that through the innovation and looking for adjacencies that I mentioned previously.
[00:09:35] Speaker C: We're very disciplined when it comes to making capital decisions. We look at most things through an ROI lens. And we do that really throughout the entire organization. Realizing that not everything is math, but starting at that as a basis point really does point us in the right.
[00:09:54] Speaker D: Direction for a lot of the investments that we're looking to make.
[00:09:57] Speaker C: Our strong financial position that we have as an organization with virtually no debt.
[00:10:02] Speaker D: High rates of return, creates an environment.
[00:10:04] Speaker C: Where we have the ability to invest back in the business and in the people that work here at the organization. The niche market focus that we have that I mentioned previously is also important. Volumes are not large enough in most cases to attract a lot of competition. As I said, we have good competition in the niches, but there isn't anyone.
[00:10:24] Speaker D: Else that really lines up against us from that standpoint. I think that creates a bit of.
[00:10:29] Speaker C: A moat around our organization.
We also concentrated and co located our production and engineering teams together in areas where we're developing products. I think that's important. There's not a lot of finger pointing.
[00:10:43] Speaker D: That goes on between engineering and manufacturing. And that's helped us as well.
[00:10:47] Speaker C: We have really high rates of returns on our investments.
[00:10:50] Speaker D: I think that shows up in our net profit margins, our returns on assets, our returns on equity.
[00:10:55] Speaker C: So I would speculate that we come up on the screen of many people that are looking for a high quality.
[00:11:02] Speaker D: High profit margin business to make investments in.
[00:11:05] Speaker C: When you buy our stock, you're getting a really strong, safe company with a.
[00:11:10] Speaker D: Positive track record, good Runway for additional growth, a lot of new products, always.
[00:11:15] Speaker C: Looking for new markets, always looking to expand our channel and always looking for.
[00:11:19] Speaker D: The opportunity to put accretive acquisitions into the mix as well. So it's a nice business from that.
[00:11:25] Speaker B: Standpoint, switching gears a little bit here and talking a little bit about all of the macro stuff that has been going on around us. The pandemic brought significant changes to the business landscape. How did it impact Greco? And it still does, I'm sure. And what are some of the long term changes do you anticipate in the industry as a result?
[00:11:48] Speaker C: Well, the pandemic did bring some changes. It certainly shifted some of the purchasing.
[00:11:54] Speaker D: Patterns of our customers right out of the gates. For the first couple of months, as everyone else and our arena figured out, borders were tough to come by.
[00:12:03] Speaker C: But then soon after that, there was.
[00:12:07] Speaker D: A resurgence in a lot of the do it yourself projects that followed from.
[00:12:12] Speaker C: People being at home and looking for.
[00:12:16] Speaker D: Ways to improve their homes either by themselves or hiring contractors to do that work, which really helped us out because of our contractor segment, which is really focused on that.
[00:12:26] Speaker C: We also immediately came out of COVID and had a lot of capacity constraints.
[00:12:31] Speaker D: Because once the world turned back on, there were all kinds of pent up demand in order. So you're sure aware of all the supply chain constraints that went on coming out of COVID and really in 22 and partially into 2023. And that did cause a lot of.
[00:12:48] Speaker C: Businesses to make incremental capital investments to keep up with that demand. And every time a factory makes an investment, that really is good for Greco.
[00:12:57] Speaker D: Because they typically buy new equipment to make the products that they're interested in selling to things like consumers.
[00:13:05] Speaker C: During the pandemic itself, our engineers and our office staff were not able to.
[00:13:10] Speaker D: Come into the office, but our factories remained open. Those people came in every day. They exposed themselves and their families to Covid.
[00:13:18] Speaker C: So once the restrictions were lifted in June of 2021, I was a brand new CEO at the time. We made the decision to bring all of our people back into the office.
[00:13:30] Speaker D: And we've really remained at that level since that time. We don't offer permanent remote work or permanent hybrid work.
[00:13:37] Speaker C: We have flexible work environment where somebody.
[00:13:40] Speaker D: Needs to be out of here for a reason. We usually give them that opportunity to do it. But I think that's really helped us.
[00:13:46] Speaker C: In being able to maintain a family culture, maintain a really good team and environment.
[00:13:53] Speaker D: And we have really not pivoted off of that cadence.
[00:13:58] Speaker B: Mark, aside from that, we also have faced a lot of global supply chain disruptions and geopolitical tensions. In context of that, how does Greco approach risk management?
[00:14:12] Speaker C: Yeah, we have a fairly detailed risk management process here at Graco. I'm sure most companies do. Of course, we have one category of things that we just don't tolerate any.
[00:14:22] Speaker D: Kind of business ethic violation or non compliance with laws and regulations or anything that would damage the company's reputation. That's those are zero tolerance areas.
[00:14:33] Speaker C: And then of course, any business has got the normal day to day business issues that come up and opportunities that.
[00:14:41] Speaker D: Are presented, and we try to balance those against different risk aspects. So things like how do our growth.
[00:14:49] Speaker C: Strategies translate into risk?
[00:14:53] Speaker D: Are there risks around those? How can we minimize those risks? What kind of sourcing risks we might.
[00:14:58] Speaker C: Have either coming out of the pandemic.
[00:15:01] Speaker D: Or just an ongoing basis with our current supply.
[00:15:05] Speaker C: What are the risks around certain foreign operations that we have?
[00:15:09] Speaker D: In some areas, there's more of an opportunity for things like fraud and corruption than others. There's risks around our information systems, our platforms. Everyone knows about cybersecurity, so we take those very seriously.
[00:15:25] Speaker C: Litigation comes up from time to time.
[00:15:27] Speaker D: We try to manage those risks as well.
[00:15:30] Speaker C: It's really a number of different characteristics. We do an enterprise risk assessment every year where we create a heat chart for our board of directors to look at and we share that data with them on a regular basis if there are changes. But for the most part, running any business involves risks. We try to be as transparent as we possibly can with our investors and.
[00:15:55] Speaker D: With our board of directors to make sure that we're addressing all the risk areas appropriately.
[00:16:01] Speaker B: Right. And mark more on the tailwind side now with construction benefiting from IIJ, IRA and the Chips act, how is the company looking to capitalize on these opportunities given that's an important market for you?
[00:16:20] Speaker C: Yeah, I mean, to the extent that there's funds available and customers that are investing and putting capital to work, I think that we're very well positioned to take advantage of that.
[00:16:30] Speaker D: So everything from what's going on with.
[00:16:33] Speaker C: Airport infrastructure to infrastructure with highways and bridges and different water towers and wastewater.
[00:16:42] Speaker D: Treatment facilities, those kinds of things, all.
[00:16:44] Speaker C: Of those contractors really need Graco equipment.
[00:16:48] Speaker D: To do their jobs.
[00:16:49] Speaker C: And we get the demand through our customers. And to the extent that the funds are available, we're well positioned because we've got channel partners around the world that are co located and positioned with those distributor, with those customers to deliver the.
[00:17:08] Speaker D: Products, the technical support, the training that they need to be able to get the job done. So Greco will benefit. As the customers need our products, we'll be there to help serve them.
[00:17:20] Speaker B: And on the digital side, we are witnessing an AI gold rush.
So for Greco, what does that mean for Greco? How are you leveraging some of the advancements on the digital and the AI side and data analytics and let's say machine learning to enhance your products and services?
[00:17:41] Speaker C: Yeah, I would again say we're not going to be on the cutting edge of this stuff, but to the extent that our customers need data to provide that to them internally, we have a number of teams that are experimenting in.
[00:17:52] Speaker D: Several areas like customer service, marketing, technical support. How can we use AI?
[00:17:58] Speaker C: How can we gather enough of our own data so that we can be easier to do business with our customers?
[00:18:04] Speaker D: As you can imagine, having been around for 100 years, we have a lot of different product offerings and parts and catalogs. And so we're looking to try to organize some of that better externally so that our customers have a good experience with us.
[00:18:18] Speaker C: We do provide data and analytics to our customers that they want that they'll find value in.
So things like fluid dynamics, application data, real time information to help them fine tune their processes, making sure that every part that they crank out in a factory is done.
[00:18:38] Speaker D: The same way that it's painted, the same way that it's bonded, the same way that it's adhered to, the same.
[00:18:43] Speaker C: Way a lot of our customers are.
[00:18:44] Speaker D: Demanding that data so they can fine tune their processes and improve their quality and improve their consistency. And our products line up nicely to be able to deliver those things.
[00:18:56] Speaker B: So mark, shifting gears again a little bit to talk about your personal journey. You've been with Greco for nearly three decades, right? How has the company and the industry evolved during your tenure?
[00:19:11] Speaker C: Well, it's a much larger, more profitable.
[00:19:14] Speaker D: Business than it was when I joined back in 1990.
[00:19:18] Speaker C: The number of talented people that we've.
[00:19:22] Speaker D: Gotten in the organization over those three decades has also increased pretty dramatically.
[00:19:28] Speaker C: The number of end markets and applications.
[00:19:31] Speaker D: And customers has also expanded.
[00:19:33] Speaker C: So one example would be the home.
[00:19:36] Speaker D: Center product line in the home center channel. Back in 1995, we did not serve anyone other than the professional painting contractor in that segment. And today, of course, we are serving the tradesman, handyman, DIY customers through the home center channel. Another example would be our spray foam business did not exist back in 1995, but we were able to get involved with that opportunity as that market evolved. Our sealants and adhesive businesses has grown and evolved over that time period.
[00:20:11] Speaker C: So a lot of different new markets, new products, new applications, also more global operations during that time period has evolved.
[00:20:22] Speaker D: As we've expanded our footprint in places like Asia Pacific, Eastern Europe, Southeast Asia, Africa.
[00:20:29] Speaker C: I would say that we're more of an independent public company than we were back when I first joined in 1995. At that time, about 30% of our outstanding stock was held by the family that founded Graco. And we were able to acquire those shares in two transactions.
[00:20:47] Speaker D: One of them was in 1999, the other was in 2001.
[00:20:51] Speaker C: And at that point we really were.
[00:20:53] Speaker D: Institutionally held and became more of a public company that was focused more on the shareholders.
[00:21:00] Speaker C: Since that time, we're much bigger, a lot more scale, a lot more cash flow, larger opportunities, more talented people.
[00:21:09] Speaker D: A lot of changes over the last few decades.
[00:21:12] Speaker B: Sounds exciting. And what have been some of the key moments that motivated you to stay with the company for that long and then rise to the C suite?
[00:21:22] Speaker C: I don't know if there were any real key moments, but I always knew that I wanted to work for a company that was constantly challenging itself, always.
[00:21:30] Speaker D: Growing and providing myself and others with a chance to try different things in their careers.
[00:21:36] Speaker C: We have so many different jobs at Graco, and really in any manufacturing company, there's really something for everyone. If you want to be a salesperson you can get that experience. We have market people that are career.
[00:21:50] Speaker D: Marketing people that have great careers that way.
[00:21:53] Speaker C: We have engineering people.
[00:21:55] Speaker D: We have manufacturing folks.
[00:21:57] Speaker C: We have finance. We have legal. We have procurement.
[00:22:00] Speaker D: We have customer service.
[00:22:01] Speaker C: There's just limitless opportunities for people to.
[00:22:05] Speaker D: Explore different career options.
[00:22:06] Speaker C: And we do a really good job here of moving folks around if they.
[00:22:10] Speaker D: Have an interest and they have the.
[00:22:12] Speaker C: Skills that are able to move into.
[00:22:15] Speaker D: Different areas within the company. And I think that that's really worked well for us.
[00:22:20] Speaker C: We are a pretty big family here where I think the culture is one of we come in, we work hard but we don't overwork ourselves.
[00:22:30] Speaker D: And we also like to play hard when we're out of here, spend time with our families. And it's definitely that kind of a culture which is led us to or led me to want to stay with Greco for almost 30 years now.
[00:22:46] Speaker B: Sounds really nice. So Mark, now for closing thoughts. Greco is part of what we call the titanium economy. That is the industrial technology sector which is the unsung hero and engine of the american economy. What are your thoughts on the future of the sector?
[00:23:03] Speaker C: Well, I really do think that the industrial sector is thriving. It's full of innovation.
Manufacturing in and of itself provides a.
[00:23:12] Speaker D: Lot of high quality jobs, great career alternatives for many. Some of the ones I mentioned previously.
[00:23:19] Speaker C: There'S tremendous amount of staying power within the manufacturing sector. It's driven really by the changing needs.
[00:23:26] Speaker D: Of our customers and the changing needs of the world.
[00:23:30] Speaker C: And I feel like manufacturing is alive.
[00:23:33] Speaker D: And well, well in the US and in other places to be able to respond to those changes.
[00:23:39] Speaker C: I'm pretty bullish on what you refer to as the titanium economy. Well, many of the companies that people deal with every day appear to be really visible. Many do not.
[00:23:50] Speaker D: So when you ask people about Amazon, Microsoft, Tesla, Ford, GM, everyone gets a.
[00:23:55] Speaker C: View in their head of what that means.
When you ask them about companies like.
[00:24:00] Speaker D: Graco they might think of baby strollers. We're not the baby stroller company, but.
[00:24:05] Speaker C: Really the Gracos of the world make these businesses work.
[00:24:08] Speaker D: They are the backbone of the economy.
[00:24:10] Speaker C: While you don't see our name posted on billboards or sports arenas people's lives.
[00:24:17] Speaker D: Are really touched by us and other manufacturers everywhere. The lines on the roads that you see when you drive to work are painted with our sprayers. The houses that we live in and the offices that we work in are all painted with graco sprayers.
Your car was painted with our pumps and our applicators. Your appliances were likely powder coated by our gama powder equipment company.
[00:24:40] Speaker C: The solar panels that you see going.
[00:24:42] Speaker D: Up on all the houses and all the all the factories and commercial properties were likely bonded with Graco equipment.
[00:24:50] Speaker C: And the airplanes that you fly in.
[00:24:52] Speaker D: Were also painted, bonded and sealed and with Graco products.
[00:24:55] Speaker C: I'm sure every other manufacturer could tell you similar things.
[00:24:59] Speaker D: Manufacturing is definitely the backbone of this country. We are but many of the unsung companies that keep the economy moving. And I'm proud to be part of what you call the titanium economy, the backbone of America.
[00:25:12] Speaker B: Awesome. That's wonderful. Mark. Thank you so much for doing this with us today and really appreciate all your wonderful insights on Greco and the titanium economy.
[00:25:24] Speaker D: You are most welcome. Have a great day.
[00:25:27] Speaker B: You too.
[00:25:33] Speaker A: Thanks for listening to Ina Insights. Please visit Ina AI for more podcasts, publications and events on developments shaping the industrial and industrial technology sector.
