Graco Inc
NYSE:GGG
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
77.82
94.64
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Graco Inc
You don't have any saved screeners yet
Good morning and welcome to the Third Quarter Conference Call for Graco Inc. If you wish to access the replay for this call, you may do so by dialing 1-888-203-1112 within the United States or Canada. The dial-in number for International Callers is 719-457-0820. The conference ID number is 9444495. The replay will be available through 2:00 PM Eastern Time on Monday, October 28, 2019.
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 up the conference for questions and answers 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 purposes of the safe harbor provisions of the Private Securities Litigation Reform Act.
Actual results may differ materially from those indicated as a result of various risk factors, including those identified in Item 1A of the company’s 2018 Annual Report on Form 10-K and in Item 1A of the company’s most recent Quarterly Report on Form 10-Q.
Those reports are 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.
I will now turn the conference over to Caroline Chambers, Executive Vice President, Corporate Controller and Information Systems.
Good morning. I’m here this morning with Pat McHale and Mark Sheahan. Our conference call slides have been posted on our website that provide additional information that may be helpful. Sales totaled $401 million for the third quarter, a decrease of 4% from the third quarter last year, at actual currency translation rates, and a decrease of 2% at consistent currency translation rates.
Net earnings totaled $84 million for the quarter or $0.49 per diluted share. After adjusting for the impact of excess tax benefits from stock option exercises and other non-recurring tax items, net earnings totaled $77 million or $0.45 per diluted share.
Gross margin rates decreased by nearly 1.5 percentage points compared to the third quarter last year. Approximately half of the decline was due to a negative effect of unfavorable factory volume. Gross margin rates were also affected by unfavorable products and channel mix and changes in currency translation rate.
Realized pricing continues to offset the effect of higher material cost and tariffs. At current production levels, unfavorable factory volumes are expected to continue as a headwind for us in the fourth quarter, similar to the effect in the third quarter.
Operating expenses were approximately $3 million lower in the third quarter as compared to a year ago, as reductions in volume and earnings base expenses offset higher product development cost. The reported income tax rate was 13% for the quarter, approximately 1 percentage point lower than last year, primarily due to the revaluation of deferred taxes, pursuant to a tax rate change in a foreign jurisdiction.
The effect of the tax rate change was partially offset by the effects of decreases in the excess tax benefits related to stock option exercises as compared to last year. After adjusting for the effective excess tax benefits from stock option exercises and other non-recurring tax benefits, our tax rate was 20%.
Excluding any effect from excess tax benefits related to stock option exercises and other onetime item, our tax rate is expected to be 20% to 21% for both the fourth quarter and the full year.
Cash flow from operations totaled $136 million in the third quarter. We repaid the current portion of our long-term debt, $75 million, in the third quarter as well. Capital expenditures were $32 million this quarter, including investments in facility expansion.
Looking forward, we expect capital expenditures from machinery and equipment of approximately $35 million and investment and facility expansion of approximately $100 million and $105 million for the full year.
As the U.S. dollar continues to strengthen, the effect of currency translation will also continue to be unfavorable. At current rates, the unfavorable effect of currency translation for the full year is expected to be approximately 2% on sales and 4% on earnings, assuming the same mix of business as the prior year.
I’ll turn the call over to Pat now for further comments.
Thank you, Carol, and good morning, everyone. All of my comments this morning are in organic constant currency basis. Third quarter was much weaker than we expected, particularly in Asia Pacific, where we had double-digit revenue declines across segments. Globally, we experienced broad weakening across most in-plant product categories. Many manufacturing customers are postponing factory investments citing uncertainty, as well as softening end-market demand in specific areas.
Contractor was a bright spot with good performance in both the Americas and Europe. As construction markets remain stable and continue to provide growth opportunities. I’ll make some comments on the individual segments.
Industrial segment declined high-single-digits for the quarter, driven by weakening demand in most of our end-markets. Automotive project demand was down substantially, particularly in Asia Pacific, where it’s a large component of our Industrial segment.
The trade wars, both U.S./China and Japan/Korea are definitely taking a toll on manufacturing activity and reducing customers’ appetite for factory investments in Asia Pacific. While the general Industrial business is better than automotive, it’s pretty clear now that softness in Industrial is spreading globally.
Process segment declined low-single-digits for the quarter, bringing our year-to-date organic growth rate down to low-single-digits. Overall demand in this segment was mixed. Our environmental, oil and natural gas, and semi-conductor end-markets remain generally favorable. Additionally, we continue to get good growth from our technology products.
On the flipside, Process segment product line is more closely associated with in-plant applications, whether automotive or general industrial, are seeing similar unfavorable trends that we noted in our Industrial segment comment.
The Contractor segment met expectations, delivering a second consecutive quarter of mid-single-digit revenue growth. Construction markets in the Americas and EMEA are decent and customers are willing to invest in new equipment. New products contributed nicely to top-line sales growth.
In our main Americas market, out-the-door sales remain positive in both paint store and home center channels.
Moving on to our regional perspective, Asia Pacific demand weakened further with double-digit declines in every reportable segment this quarter. EMEA was modestly positive in the quarter, despite weak automotive demand, particularly in Germany.
Construction markets in EMEA appear stable, while the PMI in industrial production numbers are going in the wrong way. North America demand in residential and non-residential construction remain stable, while as mentioned we’re seeing signs of weakening in industrial activity.
Regarding profitability, Contractor and Process segment profitability was okay in the quarter. The large revenue decline in our higher profit Industrial segment resulted in high decremental margins for the segment and for the company as a whole. Lower factory volumes create significant headwinds for us. And the reduction in sales in our higher-margin segments along with growth in our lower-margin contractor segment reduced the overall profit percentages.
Price realization remains favorable year to date. We’re managing discretionary expenses carefully and continue full speed ahead on spending to support our long-term growth initiatives.
Moving on to our outlook, given current conditions, we’re lowering our full year 2019 worldwide outlook and expect flat revenue to 2018 on an organic and constant currency basis. Despite the softening outlook, we intend to execute our long-term playbook with continued investment in new products, facilities, processes and people.
The strategy has worked well for us during previous rough patches and we intend to be well positioned to capitalize on opportunities when our markets turn more favorable.
Operator, we’re ready for questions.
Thank you. The question-and-answer session will begin at this time. [Operator Instructions] Please stand by for your first question. Our first question comes from Matt Summerville. Please state your question, sir.
Hey, morning. Couple of questions. First, Pat, can you maybe give a little more granularity just in terms of linearity you saw across the 3 regions as the quarter unfolded and whether or not you’ve seen any incremental inflection one way or the other here in October thus far or is it more of the same?
Yeah, I’d say it’s hard to say that there was a clear trend through the quarter. We have so many different product lines, end-markets and regions. But certainly as early as July we could see that things were getting softer. And I would say that I’m not seeing anything that’s given me a great reason to be overly optimistic that any of the trends are going to change as we head into the fourth quarter here.
And then, just with respect to the various brick-and-mortar projects you’re undertaking, can you maybe update as to where you’re at with those and how we should be thinking about any related P&L impacts either in the latter part of 2019 or as we move through 2020?
Yeah, Matt, it’s Mark. We’re more or less on track with what we said we’re going to do from a brick-and-mortar standpoint. Of course, the big expenditure this year is up in Rogers with our Contractor Equipment group, where we’re expanding substantially. That facility is really scheduled to be fully completed, done by first quarter of 2020. And most of the production space will be available to that group up there by the end of this year.
Don’t expect any P&L – meaningful P&L impact here in 2019. And then in 2020, of course, as the facility comes on line, we’ll have some incremental depreciation which we have expected.
Thanks, guys. I’ll get back in queue.
Thank you. Our next question comes from Saree Boroditsky. Please go ahead.
Thanks. Good morning.
Good morning.
Just starting on APAC, you lowered the outlook across the board and I believe you guys were just out there in China in early September. So maybe just talk about what you saw when you’re there and then what were the major factors that caused you to lower your outlook?
Yeah. So we saw softening in Asia Pacific as we moved through the quarter. And so there were no real big surprises, I would say. When we got there in September, things already looked pretty rough, and as we met with the teams, both on the production side and talked about the activity at our supply base, as well as talking to our commercial people around what’s happening with our in-plant customers, particularly in Automotive, but also to a lesser extent in general industrial.
It was pretty clear that across product lines, across business units and even within our supply base that the trade-war and the slowdown in automotive in China has really – putting some strain I think on industrial activity across the board over there.
Got it. And then you commented earlier on APAC auto being about project driven, but just on autos in general. It’s now listed as challenging across all regions. So could you provide more color on that, if that’s related to production and parts sales? Are you also seeing a general slowdown in project activities?
We have definitely seen, particularly in Asia Pacific, a slowdown in project activity. I would say that in the Americas, the production level is still decent. However, it’s not growing, it’s off peak. And I think that’s definitely putting a little hesitancy in some of the capital investments that we see. But in general, the main pain that we’re getting in automotive is coming out of Asia Pacific and really China in particular.
Do you think that’s more of a onetime thing? Or do you expect that to continue going forward?
It’s hard to say. I mean, there is lot of news reports that the Chinese government is going to try to stimulate automotive production as we go into 2020 with some incentives. So I suppose, given some sort of government intervention that could turn. But as of right now, I’m not seeing anything looks overly positive.
Great. I appreciate the color. Thank you.
Thank you. Our next question comes from Jeffrey Hammond. Please state your question.
Hey, good morning.
Good morning.
Good morning.
Pat, can you just flush out some of the mix dynamics. I think you said product mix was negative. What’s driving that?
So from a big picture standpoint our Industrials are highest margin. And we get high margins overseas as well. So when you see that the hit that we take both in Asia Pacific and Industrial on a margin percentage standpoint when that declines vis-à -vis the offset on growth in contractor which is lower margin, the math there doesn’t work very well.
And I can let Mark weigh in if he wants to bring any more clarity to that.
Yeah, I think that’s accurate and if you look at the decremental margins in the quarter and on a year-to-date basis, it’s really coming out of that Industrial group. The other two segments are actually performing in line with what we were expecting in terms of incremental margins.
Okay. And then, I guess, just a little more context on this Asia weakness. I mean, the extent is pretty dramatic and just want to get some context on what you’ve seen in past cycles, where – is this just a completely different environment or historically you see these sharp declines and then snapbacks or…?
So, personally, I’ve been here almost 30 years. The only big crash that I have personally had to deal with was 2008. And I don’t think there is a lot of similarity between the causes of what happened in 2008 and what’s going on right now. Obviously, the trade wars are having an impact. I’m not sure that’s the only issue that they’re having. I would anticipate that they may have struggled with growth even without the trade war to some extent, just given what we’ve seen happen to the automotive industry over there.
So I don’t really know how this one is going to play out. I haven’t seen anything that looks exactly like it before. I think if you look at global industrial indicators and if you take a look at folks that are reporting now on what their industrial business is doing, there is definitely room to be concerned.
However, the consumer and construction market seem okay. So I think on one hand you could hope that the consumer and the construction markets pull industry out of a little recession. On the flipside, this could be some warning signs, canary in the coal mine. So I’ll leave it to you guys to figure that one out.
And then, just last one, Europe, I guess, compared to some of the PMI data and what we’re hearing from other companies, kind of continues to be a little more resilient than I would have thought. Just maybe speaking to the Industrial and in-plant in Europe, what are you seeing from a quoting and order activity? Thanks.
Yeah. We generally don’t share details on orders. I would just say I refer to the comment that I made here earlier, where I don’t see anything changing here as we’ve entered into the fourth quarter versus the trends that we saw in Q3.
And I would just add that our Contractor business in Europe, when you look at our aggregate number is a meaningful piece of that region now and that business has done well. And that probably makes our European numbers look a little bit better than maybe some of the things that you’re seeing from other industrial companies.
Okay. Thanks guys.
Thank you. Our next question comes from Joe Ritchie. Please state your question.
Thanks. Good morning.
Good morning.
Good morning.
So maybe just focus first on Industrial, just the decremental margins in that business. So clearly look the organic growth was lower than expected, and I think, Pat, you mentioned some comments around mix impacting this business. But how should we be thinking about the decrementals in this business moving forward assuming that the growth backdrop remains tepid, to say the least?
Yeah. I think, you can pretty much figure that if we have declines in revenue and industrial, you’re going to see substantial decremental margins. We don’t intend to cut our engineering groups or cut our sales teams, and we’ll have some pressure on factory volumes.
Got it. Does that – is this kind of sustains itself then going into 2020? Does that change your planning process to any degree?
No. Not really. I mean, we started a product development project, we’re talking about anywhere from 12 to 24 months. And to start and stop those things really doesn’t make a lot of sense. It might make a quarter or two look better, but I don’t think that is the right long-term move for our shareholders and for the company. So we will stick to our knitting, and we make adjustments all the time based upon what we think the long-term is going to be, but we don’t change our investment strategy much because of a hiccup here and there.
Got it. And then any – maybe the flip side of this is like, obviously, Contractor had a nice quarter. Just any color you can give us on product introductions that you’re expecting through the end of this year and then any initial thoughts on how to think about 2020?
So the Contractor new products generally launch in the first half of the year. We try to do that, that’s really when the key selling season and painting season, and get the channel loaded. So I don’t anticipate that the – there’s going to be anything new, that’s going to be substantial. It’s going to happen in the second half of 2019. But we continue to harvest the delta between products that we have this – last half of this year that we didn’t have the last half of last year that were launched here in the first half of the year.
So I think, it’s going to be a, I would say, a more normal cycle as you’ve seen in the past in terms of Contractor and new product impact.
Okay. Great. Thanks guys.
Thank you. Our next question comes from Deane Dray. Please state your question.
Hey, good morning, everyone.
Good morning, Deane.
Good morning.
Hey, Pat, maybe just go back to some of your macro comments, because you do touch so many different end markets. But can you expand on your point when you said that you thought that the slowing was spreading globally? It seems like the epicenter of the weakness is Asia and you’ve clarified that. But just could you expand on the thought about what’s spreading?
Yeah. We’ve been chasing the following night for all year, as you’re well aware in terms of our outlook and what – where we thought the business was going to go. So we haven’t – our crystal ball looks more like a bowling ball here the last 6 or 9 months, [indiscernible]. But when I take a look at what’s happening in Asia and how back that’s getting, and then I take a look at some of the weaker results that we’re getting in EMEA and the Americas.
And I look at really the connectivity between manufacturing geographies now. I mean, they’re really not independent of each other. It’s really difficult to say that, China is going to go into the tank, but Germany is not going to be affected, America is not going to be affected or Korea is not going to be affected. So I think when you see the kinds of decline that we’re seeing in Asia-Pacific, and a little bit of softening that we’re seeing in EMEA and the Americas industrial not just Graco, but other folks that are reporting. To me, it seems pretty clear that, that connection between all the regions is going to play itself out a little bit here.
Okay. That’s helpful. And then just – I’m characterizing the actual slowing that you’re seeing, because customer has a tendency to pull the trigger on factory investments. Are there outright project cancellations going on? And is this – if you look at your competitor landscape, are they seeing the same things? I just want to make sure that this isn’t anyway a share loss.
So we haven’t seen any project cancellations to any great extent. It’s typically been projects that are getting moved out. And major projects get tracked at Graco, and we know if we win them or lose them. And we’re pretty confident that we’re not losing share. I think this is just a hesitancy to invest and things that are getting pushed back. And politics might be able to have a finger in that turnaround if there is some sort of resolution on some of the trade issues that are out there that might take away some of the uncertainty and get some of these projects going again, if it doesn’t drag on too long. I guess, if it drags on too long that could be another problem.
But I don’t think that we’re losing share. We don’t get a lot of clean competitive data to look at. I think that one of our competitors, you can look them up yourself, they reported this weekend. And their results were on the industrial side that line up pretty well were actually more challenged than ours. So I feel pretty good that we have the knowledge that we’re not losing any share.
That’s helpful. And then the extent of your products that go through distribution broadly, where does this inventory destocking, has that run its course? Are you still seeing some of that? So if you’re measuring the sell-in versus sell-through, where and how might that look today?
Yeah. In our Industrial and Process segments, I don’t think that inventory stocking or destocking is generally a factor for us, and I don’t think we talk about it much. Sometimes we talk about it as related to Contractor, that’s more of a retail model. But our Industrial and Process segment product offerings are so diverse, and it’s low volume, high mix kind of stuff, and we ship fast.
But typically our distributors are stocking the spare parts and kind of the everyday stuff that they need to keep their customers going. But the majority of what they’re selling, they’re ordering from Graco and that there is a pretty short cycle between that happening. So I don’t think inventory stocking or destocking is going to be a reason for our performance. I think it’s going to really be pretty connected to what’s happening at the end market in Industrial and Process.
Got it. And then just last, it’s not so much of the question, it’s more of a comment that – I thought your response on the decrement else on the Industrial were just refreshingly candid. Just to say that you’re not going to mortgage your future and cut sales and cut engineering costs and the decrementals are just going to be in these situations, higher. And I appreciate the comments. Thanks.
Good. And I’d just say that, that was a strategy that we took back when things went to hell in 2008. And we feel really good about how we came out of that. We were positioned very well. Our people were still on board. We had our sales coverage, and our new product development was full speed ahead. So I’m not expecting or hoping that this was going to be like 2008, but I think our strategies are effective long-term and we’ll take a little bit of short-term pain.
Thank you.
Thank you. [Operator Instructions] Our next question comes from Walter Liptak. Please state your question.
All right. Thanks. Good morning. Just to follow on the last one and understanding that you are to keep investing your business, you got the game plan that you follow through The Great Recession. It’s part of the game plan, I guess, is there some cost that you can take out? Can you bring SG&A levels down? Or is there some manufacturing overhead costs that you can reduce to, kind of, offset some of those decrementals?
So we’ve talked about it before, and Caroline may weigh in here in a second. But we have a percentage of our expense, not a huge percentage, but it’s tied to things like growth rebates for distributors or incentive plans for the employees that work here. And those things automatically adjust as we do better or as we do worse and those things have been adjusting down, and you’ve seen that show up in a reduction in our overall expenses. But we also look at other sort of discretionary spending. Every headcount that we think that we need whether it was because of a retirement or because of a growth initiative. We look at it with some extra scrutiny during times like this. We take a look at to that travel and things like that.
But in the big picture, most of our expenses are related to the people that we have, and if we want to make a great big move, we would need to get rid of a whole bunch of people. And we don’t intend to do that. We intend to keep the books that we have. We have good people here and their long service. And so I think you’re going to see this happen on the margins. And I can let Caroline weigh in just a little bit on the variable piece.
Yeah. That’s correct. We absolutely take a look at that, and we make sure, we’re monitoring what’s going on there in our forecast and use those to drive our incentive accruals, and bringing them down accordingly. And we redeploy resources where they’re needed and can make the best use of those in the factories as well.
I just find this a little bit interesting when somebody gets a couple of tough quarters and all of a sudden they find millions of dollars worth of savings. We look for those savings every year. We run our zero-cost game in our factory every year. Our incentive program are set up for improvement in revenue and profit every year. So I guess, if there was millions of dollars of savings that I could just find now, because we had a couple of rough quarter, I probably wasn’t doing my job last year.
Okay. That was my next question, so I won’t ask that one. What about inventory levels? It sounds like you’re going to be lowering inventory levels, where would you like to be as you exit fourth quarter? And what impacts is that going to have on absorption?
So those come down through our systems here. With our high volume – our low volume high mix kind of production, we’ve got pretty sophisticated tools in place to try to predict what’s going to happen with demand and try to react what’s happening actually in demand. And those systems, although there is a lag in them, of course, as the business is trended down, those things are working hard to try to adjust. And so that causes us to put out less purchase orders for supply components and drive less production through our machines.
Certainly, as we’ve seen the slowdown, we have had, I’ll say that double whammy that you referred to, where we got lower demand out the door plus our systems are driving us to lower production rates, that has been painful here in the third quarter. And as Caroline mentioned, we expect similar levels of pain going through the fourth quarter. That could ease a little bit sometime in the next year if things stabilize. But the down, yeah, there is a bit of a double whammy there.
And as Pat said, we’ve already seen some of that in the third quarter. So I expect the rate of decline to be about the same in the fourth, given our outlook on the top-line.
Okay, great. And then the share repurchase in the press release you alluded to, maybe being more opportunistic. If you just refresh us on how much is available on the share buyback program?
I think we have about 21 million shares available for repurchasing, and again, we’re going to be opportunistic. We kind of dipped our toe in the water here a little bit in Q3, and let’s see what happens going forward, similar approach to what we’ve taken historically.
Okay. Great. Thank you.
Thank you. Our next question comes from Bryan Blair. Please state your question.
Good morning, everyone. Thanks for taking my questions.
Good morning.
Good morning.
You mentioned to the delta between your Industrial results and a competitor who released couple of days ago. And I assume part of that difference is attributable to the much larger parts and accessories presence you have globally? I was just wondering if you could offer a little more color on original equipment versus after market trends specifically in the Industrial segment.
Yeah. So what I can say is, when I look at the report on our sales of parts and accessories for the third quarter compared to our historical norms that they’re right in where they’ve always been at about on our legacy business right about that 40% of our sales. So although project activity’s been down, I think production volumes have been down a little bit as well. And the one area where a distributor could decide that they wanted to make some adjustments would be on parts and accessories. If they had 10 in stock and things were slow, they could set the reorder point at 6 instead of 8 or whatever.
So it’s pretty hard to get our arms around that. But just looking at the fact, the facts say that our parts and accessories business is still runs just about 40% of our legacy business.
Okay. I appreciate the color. And then a quick follow-up, sorry, if I missed any commentary in this front. But M&A environment that you said M&A targets, but still your expectations have been lofty for a while. Has there been any reset there as we’ve had some increasing macro weakness and uncertainty?
No. I haven’t really seen it. Anything that’s got some size to it, that’s a good business, it’s going at pretty high multiples. Our best opportunity is in the near term probably remain in the smaller size deals and yields that we don’t necessarily have to do at auction. So we continue to do our work, but I think it’s unlikely that we’re going to get the opportunity at a good price to buy something that’s large and attractive here in real short-term.
Okay. Understood. Thanks again.
Thank you. If there are no further questions. I will now turn the conference over to Pat McHale.
All right. Thank you everyone for your time this morning. And hopefully, we’ll have better news for you on our future call. Thanks.
This concludes our conference today. Thank you all for participating and have a nice day. All parties may now disconnect.