Apr 23, 2009
Executives
Caroline M. Chambers - Vice President and Controller Patrick J.
McHale - President and Chief Executive Officer James A. Graner - Chief Financial Officer and Treasurer
Analysts
Kevin Maczka - BB&T Capital Markets Michael Schneider - Robert W. Baird Ned Borland - Next Generation Equity Research Terry Darling - Goldman Sachs Anthony Kure - KeyBanc Charles Brady - BMO Capital Markets
Operator
Good morning and welcome to the First Quarter 2009 Conference Call for Graco Inc. If you wish to access the replay for this call, you may do so by dialing 1800-405-2236 within the United States or Canada.
The dial-in number for international callers is 303-590-3000. The conference ID number is 11130290.
The replay will be available through April 27, 2009. Graco has additional information available in a PowerPoint presentation slide, which is available as part of webcast player.
At the request of the company, we will open the conference up for question 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 provision 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 an Exhibit 99 through 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 of the time they are made.
The company undertakes no obligation to update these statements in light of new information or future events. At this time all participants are in a listen-only mode.
(Operator Instructions). I would now turn the conference over to Caroline Chambers, Vice President and Controller.
Please go ahead.
Caroline M. Chambers
Good morning and welcome to everyone. I am here this morning with Pat McHale, Graco's President and CEO, and Jim Graner, our CFO.
I will briefly review our first quarter results, and Pat will follow with additional comments. Following these opening comments, we'll open up the call for your questions.
Our operating results were severely affected by the depth of the recession with a decrease in sales in all segments and regions. Low volume drove a decrease in operating profit margin with impacts from low factory volume, workforce reduction costs and currency translations that also affected profitability.
Sales declined by 32% or 29% at consistent exchange rates in the first quarter as compared to the same quarter last year. By region, sales decreased by 32% in Americas, 40% in Europe or 32% at consistent exchange rate and 24% in Asia Pacific.
Our gross profit margin as a percent of sales was 46.7% this quarter, down from 54.8% last year. This is primarily due to lower production volume which was about 4 percentage points of the change, unfavorable currency translation rates, workforce reduction costs of $3 million, approximately 1.5 percentage points, and increased pension cost of about $2 million, approximately 1 percentage point.
Total operating expenses were slightly lower than last year. We saw product development spending that did increase by $2 million as well as the increased pension expense of $3 million and severance expense of $1 million and operating expenses.
Offsetting these increases were the effects of the workforce reduction that was made in the fourth quarter of 2008, lower incentive and bonus provisions and other spending reductions. Effect of currency translation also decreased operating expenses by 2 million.
The effective tax rate for the first quarter was 34%. This is higher than last year's first quarter rate of 30% as there was a settlement of various exams in the first quarter of 2008.
On the webcast player, you will find some PowerPoint slides, and on page five, are some additional segment comments. All the segments were significantly affected by the factory volume and operating margins, unabsorbed manufacturing costs, severance costs related to workforce reduction and the effect of currency.
All segments also saw additional investment and product development spending as compared to last year. Profitability in the Contractor segment was also affected by introduction of the entry level unit in additional home center stores this quarter and a change in the channel mix between the paint star channel and the home center channel.
Profitability in the Lubrication segment was affected by a change in product mix between vehicle services and industrial lubrication. On page eight in the PowerPoint presentation you'll find some comments concerning liquidity.
We continue to have strong cash flow in the quarter with positive cash flows from operations of $28 million, down 13% as compared to last year. We're focused on managing working capital and saw a decline in accounts receivable of 21 million and a decline in inventories of 6 million.
We also reduced long-term debt by 13 million this quarter. I'll now turn it over to Pat for additional comments on the quarter.
Patrick J. McHale
Good morning. Business conditions in Q1 were obviously very difficult.
We saw declines in production and our customer base, along with significant reductions in factory capital equipment spending, the weak construction markets and also inventory reduction by our channel partners and our end customers. And all those things pressured us in all product lines and all geographies.
The Q1 declines were steeper than we had anticipated in the fourth quarter. So we took further expense actions in March, including workforce reduction of about 180 people, both factory and office.
Although we have reduced our head count by more than 25% during the past year, we continue to protect our key long-term growth initiatives and our human capital. We did win 300 new home center outlets in Q1 for our entry level spray equipment business.
We had one-time costs associated with that of $1.5 million. Due to the nice growth of outlets over the past few quarters, our North America home center business actually grew in Q1 while our North America pink channel business decline in line with the segment.
As Caroline mentioned, we're seeing pressure on margins due to this mix shift. We are also seeing customers buying down to lower price and less profitable equipment in both the home center and the pink channel segments.
I expect this dynamic to continue until we begin to see the North American housing markets turn. Our pricing powers remain intact.
We're on track to realize a 3% that we had planned and previously communicated. Our cash flow for the quarter remained strong at $28 million; that's 20% of revenue.
And we're certainly going to continue to focus on cash generation in the coming quarters. As you know, we had a goal during 2008 to increase our investment in new product development.
By Q4, we completed our ramp-up of hiring, and we were running to our expanded project plan. Our $10 million spend in Q1 was roughly flat to Q4 but it was up 26% versus a year ago.
As communicated previously, we will begin to see the first results of this incremental investment in the second half of 2009, and we should achieve the full impact in 2010. We continue to be positive on the long-term growth opportunities internationally, particularly in the developing markets.
However currently, Eastern Europe is extremely weak, and I don't expect much improvement there this year. I am more optimistic about our 2009 opportunities in both India and China.
And long term I am convinced developing markets will offer above average growth opportunities as people strive for a higher standard of living and industrial production grows to meet those demands. As you'll recall last year, we increased our sales and marketing people in Asia by 33% and in Europe by 15%.
To date we've maintained this investment level although we are not currently adding additional head count. We do continue to specialize distribution and to strengthen our channel.
On the acquisition front, we continue to explore opportunities to acquire businesses where we can add value, although we will become conservative in our decision process and we favor a near term debt reduction to anything but really the most ideal acquisition opportunities. August 2008 acquisition of Lubrication Scientific was integrated into our new Anoka facility in the first quarter.
This acquisition broadened our product offering in the industrial loop segment which we've targeted for growth. As discussed in the Q4 call, our factory performance in Anoka is behind plan, and we have a number of significant projects yet to be implemented to get product margins in the industrial lubrication segment to our desired levels.
Operational excellence remains the top priority. We continue to drive cost reduction programs in all factories.
We anticipate lower capital needs this year approximately $20 million as the current volume levels are not driving a need for capacity expansion. And we've also increased the hurdle rate on other investments to reflect the uncertain conditions.
Our purchasing team is doing well harnessing cost reductions, approximately 1 million for the first quarter. We anticipate favorable comparisons on materials for the year.
Near-term we expect that the business to remain challenged; a few end markets or geographies show any real signs of strength. I will say that our order rate over the past several weeks has improved slightly from a run rate perspective, although we expect Q2 comparisons to be difficult.
Forecasting is nearly impossible. So we're developing some contingency plans to address various potential scenarios that might unfold.
I want to make sure that everybody understands our business model is still sound. The competitive environment is stable.
Our product offering, our channel, our sales organization are all as stronger -- stronger than ever. While the reductions we have made have been painful, we have attempted to avoid cutting too much muscle, and we expect our results will improve quickly with modest volume improvements.
Apart from volume and mix, our gross margins are strong. Our incremental operating margins are high or so are our decremental margins.
And with the expense actions already taken, we expect our earnings will improve quickly when business normalizes. With that, I will go ahead and open up the call to questions.
Operator
Thank you. The question and answer session will begin at this time.
(Operator Instructions) Our first question comes from the line of Kevin Maczka with BB&T Capital Markets. Please go ahead.
Kevin Maczka - BB&T Capital Markets
Good morning.
Patrick McHale
Good morning, Kevin.
Kevin Maczka - BB&T Capital Markets
I guess, Pat, you just mentioned at the end of your remarks there that you've seen modest uptick in your order rates in the last few weeks. I am just wondering if you can give us a little more color on specifically what you have seen either by segment or by region of the world?
Patrick McHale
I can tell you that the uptick we are seeing for the last few weeks is in that single digit kind of a uptick, not dramatic. But if you are looking for glimmers of hope there is one there.
I'd say the area that's not really shown that yet in my book is Europe. I think that there is still a little bit a weakening happening there.
In fact, I talked to one of our European team guides yesterday in the office, and I think that's probably the softest region at the moment.
Kevin Maczka - BB&T Capital Markets
All right and then on the cost side Pat, in the downsizing that you've done, I have to look back I think to Q1 of '04 to see the last time the revenues were at this level. And at that time operating margins were 25%.
Now I know you're a much bigger much more global company today than you were then. But with the cost actions that you've done -- what do you view as normal in this environment?
Patrick McHale
And it's hard to view anything as normal in this environment to be perfectly honestly. Take and look at that from a cost structure perspective there is a lot of things that were different in 2004.
You need to take a look at what's going on with pension, and there is probably $15 million delta there. We've got 10 million of intangibles we didn't have back then.
We've got 9 million of stock compensation since that accounting for that change. So that there are some things that are different in terms of the fundamentals of the business.
We've got about 300 more people now than we did in that timeframe after all the cuts we've made was taken out well over 500, we've got about 300 more than we had back then. Those are primarily in Europe and Asia, that's about half of them and the other half is mostly in product development here in North America.
And again as I've communicated I think pretty consistently for the last year and a half, we are doing everything we can to hang on to those investments because we see that those investments are what's going to drive our future.
Kevin Maczka - BB&T Capital Markets
Okay. And then finally if I could Pat, on the product development costs and the operating expenses, you are still aggressive with your product rollout.
Is 10 million or so kind of the run rate that you envision for the rest of the year or will that taper off somewhat? And then on the other OpEx is that more fixed than maybe we might have previously thought because it didn't decline nearly at the rate the revenues did?
James Graner
Kevin, Jim Graner. The product development spend should remain in that 10 million a quarter number.
There will be some volatility. As to when we launch products, some of the expenses tend to bunch up what I think your annual rate there is right on -- again our fixed costs on operating expense side are human in nature.
And as Pat mentioned, we are doing nothing to cut them also from our business model.
Kevin Maczka - BB&T Capital Markets
Okay, thanks guys.
Operator
Thank you. Our next question comes from the line of Mike Schneider with Robert W.
Baird. Please go ahead.
Michael Schneider - Robert W. Baird
Good morning. I wonder first if we could start with contractor.
Pat, you mentioned that the paint channel was down consistent with the segment. But if home center was up, I believe slightly you said, what was paint channel actually down, it must have been down significantly more than the segment average?
Patrick McHale
Europe and Asia you got a mix in there. But it wasn't down significantly more than the average.
Michael Schneider - Robert W. Baird
I see. And in speaking to Asia, just both in contractor and across all three segments, can you describe what specifically is hitting Graco that may not be hitting other companies because I've struggled to find anybody else shrinking 25%-ish in Asia right now.
Is it something to do with the distribution channel or some other elements?
Patrick McHale
I think it has more to do with our automotive exposure over there than it does anything else. That's typically how we get into markets early as we get in with automotive and then we expand into the other businesses.
And our balance of our business between contractor and paint (ph), industrial and automotive tends to be more heavily weighted towards automotive over in Asia. India and China are still doing okay.
Japan, Korea, other chunks of Southeast Asia are not doing well at all right now. If I was trying to make some view of what Asia is going to do, I am still pretty optimistic on India and China having a decent year this year.
I am not too optimistic really on Japan showing any kind of strength later in the year.
Michael Schneider - Robert W. Baird
Okay. And then secular contractor in North America now, do you sense that things or did they deteriorate through the quarter within contractor?
Patrick McHale
Well, you know, we should be seeing a seasonal increase in North America contractor. And we're seeing that, it's just very unit.
So it's kind of hard to say whether things are getting better than worse but my sense in the propane side here is that the bottom has not been reached and things are continuing to get a little bit weaker. I am assuming we got to be getting close to the bottom but now it has been three years, so, not sure.
Michael Schneider - Robert W. Baird
Whether the professional was down something in the order of 28 with this segment, can you -- do you know what sell-through looks like both in the professional channel and the retail channel right now?
Patrick McHale
Yeah, we do. There is definitely still little bit of inventory reduction but that's not the major problem.
The major problem is sell-through is bad.
Michael Schneider - Robert W. Baird
Okay. And pricing within both kind of retail and professional, I realize it's held up to date.
But as volumes continue to roll like this, do you expect pricing to come under pressure, any new contract terms to be renegotiated as the year unfolds?
Patrick McHale
I don't think we'll see that for a couple of reasons. Number one, I'm not sure that in this market promotional activity really works that well.
If people need a sprayer they're going to buy it. But so I think that we're being more conservative trying to cut expenses on the promotional side.
The pricing was implemented in January, that's stuck. I don't expect any renegotiations on it.
The bigger issue really is that when either contractors or the tradesmen that are walking in the door, they look to buy a unit, they're buying smaller units they bought in the past. Instead of spending $2000 they're going to spend 1500 or instead of buying a $700 unit in the home center channel, they're buying a $400 unit.
And that's not a good dynamic for us and I expect that that's likely -- that dynamic is likely to continue to pressure our margin in that segment until we see the bottom in the housing market.
Michael Schneider - Robert W. Baird
Okay. And the home center rollout, you said that home centers were up for you in Q1.
When does that tail off and when do you -- when does home center then migrate back towards whatever the channel itself is doing ex the rollout?
Patrick McHale
Well the channel, the home center channel is struggling just like everywhere else that the big reason that we're doing better there is our own sales initiatives. And if you think back to our store adds throughout 2008, you will see that as we go through each quarter we have more difficult comparisons, because we had more stores.
We added some stores in June. We added more in August.
We added more in the fourth quarter. So by towards the end of the year, our store count will be more consistent with where we are at today.
But we do have the advantage of the program we've rolled out -- that's the program that we announced on the entry level program in December that we've rolled out this year, that will carry most of the year. Some of the home center store adds will be -- we'll have six months at least benefit on those.
So, it's not going to be a way about quick.
Michael Schneider - Robert W. Baird
So, by Q4 let's say we're at comparable store levels, or store counts, what do you believe the channel is down right now?
Patrick McHale
Boy, again, I don't have any numbers to give you exact numbers. But I am sure the channel on a same store basis is down double digit.
Michael Schneider - Robert W. Baird
Is it down as much as the professional channel at 25-30?
Patrick McHale
I don't think I can give you a good answer on that right now. I don't -- Jim, you have --
James Graner
No, I don't have any better --
Patrick McHale
We get a lot of puts and takes in our couple of business right now.
Michael Schneider - Robert W. Baird
Okay. And then Jim, just on pension expense, it was $3 million in the quarter incremental.
I believe last quarter you told us to be 18 for that year. Have you taken that assumption down for the year then?
James Graner
No, you are right. Mike.
The total is 18 million for the year and it's 4.5 for the quarter -- a million a half in COGS and 3 million on operating expenses.
Michael Schneider - Robert W. Baird
Got it. Got it.
And then final question just on this ray of hope Pat, all right just so as we don't get carried away, if orders were running down, 40% on your update as of March 18, does that it mean they're only down 35 now? How do I interpret your single-digit comment?
Patrick McHale
No, I don't think you should try to interpret it as a comparison to second quarter of last year. I think you have to just take it as a run rate comments.
If you take a look at the incoming order run rate, the run rate the last few weeks has been a little bit better.
Michael Schneider - Robert W. Baird
Okay great. Thank you.
Operator
Thank you. Our next question comes from the line of Ned Borland with Next Generation Equity Research.
Please go ahead.
Ned Borland - Next Generation Equity Research
Next Generation Equity Research. Just on some of these cost issues, are there any more charges expected or expenses expected with regard to the head count reduction in 2Q?
Patrick McHale
Not with the ones that we just announced. But as things continue to weaken we'll continue to make decisions on costs.
So I can't tell you that we're done for the year. But I can tell you that the stuff what we did in the second quarter is -- in the first quarter is in the first quarter.
Ned Borland - Next Generation Equity Research
Okay. And then on any more additional expense with regard to the rollout or is that that's all done?
Patrick McHale
Well the stars we've won are done. We're not giving up on trying to expand our channel.
So there is always possibility that we get more stores somewhere but we don't have any overhang.
Ned Borland - Next Generation Equity Research
Okay. And then now with regard to lubrication, what should we think about in terms of the trajectory to get back to profitability in that business over the course of the year?
Patrick McHale
What volume assumption do you want to make?
Ned Borland - Next Generation Equity Research
All right, okay. Well, you'll be (ph) some discontinued products there that they await in the quarter, I mean maybe if you could just break that out for us?
Patrick McHale
Yeah that's -- Caroline do you want to?
Caroline Chambers
As it relates to our product line that we discontinued the volume on that product line has been relatively low over the past 18 months, two years.
James Graner
And we expect those costs to be behind us.
Ned Borland - Next Generation Equity Research
Okay. But with regard to the Anoka plan you said that it was behind schedule.
I mean I am just wondering when we're going to get back to being on schedule?
Patrick McHale
Yeah, to be honestly with you, I am not optimistic that that's going to happen real quick. I think it's more likely to be at a year from now before we're really where we want to be.
But we've got projects that we're working on currently. And every quarter, we ought to be seeing cost reduction improvements being implemented in the factory that are going to help us on our gross margin front.
So obviously we need to get some volume through that facility up there. But beyond that we've got work to do on cost reduction.
When I talk about being behind us, that's really where we are behind on implementing some cost reduction projects. So those are ongoing and I would expect to see some healing as we go forward here.
Ned Borland - Next Generation Equity Research
Okay. Thanks.
Operator
Thank you. Our next question comes from the line of Terry Darling with Goldman Sachs.
Please go ahead.
Terry Darling - Goldman Sachs
Pat, I am wondering if you can kind of square up, orders are getting little bit better but on the other hand, you are building some new contingency plans. I am just uncertain as to where you are really going with your actions around cost cutting.
I know you have got the $18 million in hand. And it sort of sounds like you're moving towards doing more of it but it's just not clear to me.
Can you help there?
Patrick McHale
Yeah, I can try. You know, I think, it's always wise to have contingency plans available that you haven't executed to yet.
And we executed one in December and we executed another one in March. So, as we execute to a contingency plan, we need to think about what the possible future could hold.
And that's anything from stable run rate to a slightly down to a let's say, just turns out to be the great depression, it's going to last for five years. And our actions in those different scenarios are going to need to be different and we don't have to start scratching our head, trying to figure out what we're going to do.
When we see things happen we want to have some plans in place and some triggers in place that allow us to act fairly quickly and we think we did that in December and again here in March. And we just want be ready if we need to.
By nature I tend to be more optimistic and pessimistic. I travel a lot, there is a huge populations and huge chunks in this world that people are really striving for a better life.
I was recently over in Asia and several different countries over there, they are not ready to go back to the stone age. So personally I don't think we're going into the great depression, and we're going into a five year funk.
But that doesn't that mean that I don't have a plan on my desk or in case that might turn out to be the case.
Terry Darling - Goldman Sachs
But that if we assume that trends are kind of stable here so, down 35 or 40, did you make another step on your cost -- your profile or does March kind of account for that kind of a scenario?
Patrick McHale
March should account for that scenario, unless I believe that we're not going to start to climb out. Again a lot of it has to do with timeframe.
If you told me, we were going to have two more quarters like this quarter and then things were going heal up, we make no sense to go and cut 300 more people and slash product development back to 2003 levels and get rid of our international sales force. There wouldn't be a payback in that kind of timeframe to make that kind of an action.
But if we determine through -- I guess the facts as they're presented to us that the thing is going to last three years, well then we have to be willing to look at some more difficult decisions. So it's not really only a matter of what we see in terms of incoming order rate but it's also what we view that the length of this thing is going to be.
And right now I'm still I would say I'm more in a wait and see attitude where we're going to -- to try to be flexible, and we're going to try to be agile but we're not going to predict dooms day. And we're not going to predict a quick rebound either.
Terry Darling - Goldman Sachs
Okay. And then Jim can you square up the foreign currency impact at the EPS level?
I know you called out the 2 point of gross margin. But at the EPS level year-over-year was what and based on your latest assessments where do you expect that to be for the full year?
James Graner
Terry, it's $2 million on net earnings. So, 60 million shows you're little bit more than $0.03 and the full year would be -- again we will have some negative comparisons in the second quarter and third quarter.
The fourth quarter should be closer to a push-up. My forecast -- if the euro stays at 1.30, it's about 8 to $9 million pressure for the year.
Terry Darling - Goldman Sachs
Okay and just lastly where are you on CapEx for the year at this point?
James Graner
$20 million is the current run rate and current approval level.
Terry Darling - Goldman Sachs
Okay, thanks very much.
Operator
Thank you. Our next question comes from the line of Anthony Kure with KeyBanc.
Please go ahead.
Anthony Kure - KeyBanc
Good morning gentlemen. Just a couple of quick questions, on gross margins you mentioned the trading down impact is more of an impact than price.
But do you think it's possible given the raw material price declines that you should recognize in the second and third quarter, the possible recede may be a sequential improvement on the gross margin line from first quarter to second?
James Graner
No, that would our expectation. Again as Pat mentioned, we do see a little bit of street trading down happening in particular in the contractor segment.
And we do see a shift in mix within lubrication segment to our currently lower profitable rate in the industrial lubrication. So those things tend to offset but if you are looking unit by unit I would say yes we do see a tailwind and should see some improving margins.
Anthony Kure - KeyBanc
Okay. And then I noticed in the 10-Q there was a comment on that the company could take cost effective alternative liquidity options.
Just hoping you can provide a little more color on that maybe some insight.
James Graner
Yeah, I guess it goes along the lines of Pat was talking about with respect to contingency plans. So we are looking at alternatives through our revolver, and we are weighing the cost effective alternatives.
Anthony Kure - KeyBanc
Okay, so you weren't talking about like issuing more equity or dividend cuts or things like that.
James Graner
We are not.
Anthony Kure - KeyBanc
Okay. Thanks, that's all I have.
Operator
Thank you. (Operator Instructions) Our next question comes from the line of Dave Rochester with Capital Markets.
Please go ahead. Mr.
Rochester, your line is now open. We'll move on to the next question.
Our next question comes from the line of Charlie Brady with BMO Capital Market. Please go ahead.
Charles Brady - BMO Capital Markets
Hi thanks, good morning. With respect to the lubrication system segment, to what extent you guys being negatively impacted by closures of automotive dealership, is that having any kind of meaningful impact on the business?
Patrick McHale
Yes significant -- that business has been under pressure since automotive started tanked late last summer. But that we've got two segments in that business.
We've got our vehicle services which is our historical lubrication business. And of course that's got nice gross margins that we have enjoyed all along.
And that business is that vehicle services piece of the business has been under pressure on the cardio ship (ph) front since last summer. Industrial lubrication business is a new targeted market where we are working on the cost reductions and we're exactly holding up a little bit better than the vehicle services business right now giving us a little mix issue.
Charles Brady - BMO Capital Markets
And then just on the mix issue in regards to the contractor business and I know in the slide you break out channel mix. But back to your discussing about consumer pricing down buying the lower price products, can you quantify kind of what impact that might be having on the margins that the product slide down?
James Graner
I don't think we can. We got -- seeing the fact that we got some lower input costs and some pricing changes -- that are separately identifiable.
But we do see a shift in the mix to the lower, call it lower value units, lower price units.
Charles Brady - BMO Capital Markets
Okay, can you give you us what the order run rate is by segment and geography?
James Graner
We can't. We don't have that broken down on a weekly basis.
Weekly we have it by region and we prefer not to go there other than the comments that Pat passed on with respect to continuing weakness in Europe.
Charles Brady - BMO Capital Markets
Okay, thanks.
Operator
Thank you. Our next question comes from the line of Mike Schneider with Robert W.
Baird. Please go ahead.
Michael Schneider - Robert W. Baird
Hi guys, could you just dive one level deeper into industrial with the segment off -- obviously showing double-digit this quarter. Can you go into sealant and adhesive finishing process et cetera just to give us a sense of where the discrepancies lie?
Patrick McHale
I think all I can really tell you there Mike as everybody -- all our segments are down and they are all down everywhere and they are all down double-digit.
Michael Schneider - Robert W. Baird
Even process?
Patrick McHale
Yes.
James Graner
Process decline is the smallest of the product groupings in the industrial segment but it is still in double-digits
Michael Schneider - Robert W. Baird
And sealants and adhesives I presume is down most.
Patrick McHale
I don't think that.
James Graner
No, I don't think that's true.
Michael Schneider - Robert W. Baird
Excluding the high performance stuff -- is not the biggest automotive exposed.
Patrick McHale
Yeah, it is but I think -- I don't have the number right here in front of me but I do not believe that's correct. I do believe sealant is down the most.
Michael Schneider - Robert W. Baird
Okay, and the high performance division, how is that held up during this market?
Patrick McHale
That's actually been tough like everywhere else, double-digit kind of down in all geographies, although -- again from a limited whole perspective, the last few weeks have been the better.
Michael Schneider - Robert W. Baird
Okay, and if I've done that, just you mentioned at you're seeing some seasonal uptick. Are you able to differentiate the seasonality factor which is very natural from what you've identified, I guess is just at least some glimmer of hope?
Or indeed, is that what's occurring of the seasonality is what's improving your order flow?
Patrick McHale
No, I think -- again this is, Mike, unscientific analysis but if I take out what's happening with the contractor seasonality, I think, the comment still holds begin with the exception of Europe. If I have to look at our industrial business or industrial business in North America or lubrication business, I think that the comment is a valid comment in terms of that slight increased in our run rate.
Michael Schneider - Robert W. Baird
Okay and then -- so that sounds like a sequential -- so year-over-year, you have been talking again as of March 18 that things were running down to 40. What are they running down now?
Patrick McHale
Again, I am trying to combine my comments order run rate and not get into comparisons -- it really starts to get difficult to give you good information. We talk about comparisons by segment when they go up and down every month and every week.
So I will stick to run rate.
Michael Schneider - Robert W. Baird
Are there the same magnitude though or have you -- do you sense a significant improvement in that 40% decline?
Patrick McHale
I don't see any significant improvement. And we see a slight improvement.
Michael Schneider - Robert W. Baird
Okay. all right, thank you.
Operator
Thank you. (Operator Instructions) As there are no further questions I will now turn the conference over to Pat McHale.
Please go ahead.
Patrick McHale
All right. No closing comments here today.
Thanks for your participation.
Operator
This concludes our conference for today. Thank you all for your participating.
Have a nice day. All parties may now disconnect.