Double-Digit Sales Growth in the Process
Segment
Graco Inc. (NYSE: GGG) today announced results for the
second quarter ended June 30, 2023.
Summary
$ in millions except per share amounts
Three Months Ended
Six Months Ended
Jun 30, 2023
Jul 1, 2022
% Change
Jun 30, 2023
Jul 1, 2022
% Change
Net Sales
$
559.6
$
548.5
2
%
$
1,089.3
$
1,042.8
4
%
Operating Earnings
157.1
148.7
6
%
313.7
277.0
13
%
Net Earnings
134.3
117.4
14
%
263.4
218.2
21
%
Diluted Net Earnings per Common Share
$
0.78
$
0.68
15
%
$
1.53
$
1.26
21
%
Adjusted (non-GAAP): (1)
Net Earnings, adjusted
$
128.8
$
117.0
10
%
$
255.3
$
216.3
18
%
Diluted Net Earnings per Common Share,
adjusted
$
0.75
$
0.68
10
%
$
1.48
$
1.25
18
%
(1)
Excludes impacts of excess tax benefits
from stock option exercises. See Financial Results Adjusted for
Comparability below for a reconciliation of adjusted non-GAAP
financial measures to GAAP.
- Sales for the quarter increased 2 percent. Strong growth in the
Process segment more than offset a decrease in the Contractor
segment.
- Gross profit margin rate for the quarter was more than 3
percentage points higher than the comparable period last year due
to realized pricing and favorable product and channel mix.
- Operating expenses for the quarter increased 12 percent and
increased 2 percentage points as a percentage of sales.
"Graco achieved record quarterly sales and operating earnings
driven by strong results in both the Process and Industrial
segments," said Mark Sheahan, Graco's President and CEO. "These
segments experienced growth for the quarter in most major product
categories and reportable regions with the exception of continued
softness in Asia Pacific. Contractor performance was mixed, with
declines in the home center and pro paint channels partially offset
by new product introductions and growth in the pavement, protective
coatings and spray foam product categories."
Consolidated Results
Net sales for the quarter increased 2 percent from the
comparable period last year (3 percent at consistent translation
rates). Sales increased 2 percent in the Americas and 7 percent in
EMEA (5 percent at consistent translation rates), and decreased 4
percent in Asia Pacific (sales were flat at consistent translation
rates). Year- to-date sales increased 4 percent from the comparable
period last year (6 percent at consistent translation rates). Sales
increased 7 percent in the Americas and 5 percent in EMEA (6
percent at consistent translation rates), and decreased 5 percent
in Asia Pacific (1 percent at consistent translation rates).
Changes in currency translation rates decreased worldwide sales by
$3 million for the quarter and $14 million for the year to
date.
Gross profit margin rates for the quarter and year to date
increased approximately 3 percentage points from the comparable
periods last year. Strong price realization and favorable product
and channel mix more than offset higher product costs.
Operating expenses for the quarter increased $14 million (12
percent) from the comparable period last year. The increase
includes $4 million of incremental share-based compensation and $3
million of increased spending related to product development and
other growth initiatives. Operating expenses for the year to date
increased $16 million (7 percent) from the comparable period last
year. Volume and rate-related increases, higher product development
spending and incremental share-based compensation accounted for
most of the increase. Partially offsetting the year-to-date
increase were $3 million of credit losses on customer receivables
in Russia in the prior year that did not repeat and $2 million from
favorable changes in currency translation rates.
The effective income tax rate was 16 percent for the quarter and
17 percent for the year to date, down 4 percentage points and 2
percentage points, respectively, from the comparable periods last
year, primarily due to increases in excess tax benefits from stock
option exercises.
Segment Results
Management assesses performance of segments by reference to
operating earnings excluding unallocated corporate expenses. For a
reconciliation of segment operating earnings to consolidated
operating earnings, refer to the segment information table included
in the financial statement section of this release. Certain
measurements of segment operations are summarized below:
Three Months
Six Months
Contractor
Industrial
Process
Contractor
Industrial
Process
Net Sales (in millions)
$
255.6
$
163.5
$
140.5
$
501.6
$
313.7
$
274.0
Percentage change from last year
Sales
(4
)%
3
%
13
%
0
%
4
%
14
%
Operating earnings
1
%
1
%
40
%
12
%
1
%
44
%
Operating earnings as a percentage of
sales
2023
27
%
34
%
31
%
28
%
35
%
31
%
2022
26
%
35
%
25
%
25
%
36
%
24
%
Components of net sales change by geographic region for the
Contractor segment were as follows:
Three Months
Six Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
(5)%
0%
(1)%
(6)%
1%
0%
0%
1%
EMEA
6%
0%
2%
8%
6%
0%
(1)%
5%
Asia Pacific
(6)%
0%
(5)%
(11)%
(7)%
0%
(5)%
(12)%
Consolidated
(3)%
0%
(1)%
(4)%
1%
0%
(1)%
0%
Slower economic activity in construction markets in the Americas
and Asia Pacific drove Contractor segment sales down 4 percent for
the quarter. For the year to date, favorable response to new
product offerings and improved product availability were able to
offset reduced demand. Operating margin rates for the quarter and
year to date increased 1 percentage point and 3 percentage points,
respectively, as price realization and favorable product and
channel mix more than offset higher product costs and increased
spending on product development and growth initiatives.
Components of net sales change by geographic region for the
Industrial segment were as follows:
Three Months
Six Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
7%
0%
0%
7%
11%
0%
0%
11%
EMEA
5%
0%
3%
8%
5%
0%
(1)%
4%
Asia Pacific
(1)%
0%
(4)%
(5)%
(2)%
0%
(5)%
(7)%
Consolidated
4%
0%
(1)%
3%
6%
0%
(2)%
4%
Sales growth in the Americas and EMEA for the quarter and year
to date was partially offset by weakness in Asia Pacific, where
declines in finishing system sales and other project activity
continued. The unfavorable effects of currency translation drove a
1 percentage point decrease in the operating margin rate for the
quarter and year to date.
Components of net sales change by geographic region for the
Process segment were as follows:
Three Months
Six Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
19%
0%
0%
19%
20%
1%
0%
21%
EMEA
3%
0%
1%
4%
7%
0%
(1)%
6%
Asia Pacific
5%
0%
(3)%
2%
6%
0%
(3)%
3%
Consolidated
14%
0%
(1)%
13%
15%
1%
(2)%
14%
Double-digit sales growth continued in the Process segment for
the quarter and year to date from the comparable periods last year.
Sales growth for the quarter and year to date was particularly
strong in the automatic lubrication, vehicle service and
semiconductor product applications. The operating margin rate for
this segment increased 6 percentage points for the quarter and 7
percentage points year to date from the comparable periods last
year primarily due to price realization and expense leverage.
Outlook
"Incoming order rates are in line with our expectations," said
Sheahan. "However, comparisons for the remainder of the year will
be more difficult as a result of pricing actions implemented in the
second half of last year. We are confirming our revenue outlook for
the full year of low single-digit growth on an organic, constant
currency basis."
Financial Results Adjusted for Comparability
Excluding the impacts of excess tax benefits from stock option
exercises presents a more consistent basis for comparison of
financial results. A calculation of the non-GAAP measurements of
adjusted income taxes, effective income tax rates, net earnings and
diluted earnings per share follows (in millions except per share
amounts):
Three Months Ended
Six Months Ended
Jun 30, 2023
Jul 1, 2022
Jun 30, 2023
Jul 1, 2022
Earnings before income taxes
$
159.6
$
146.3
$
317.0
$
269.3
Income taxes, as reported
$
25.4
$
29.0
$
53.5
$
51.1
Excess tax benefit from option
exercises
5.5
0.4
8.1
1.9
Income taxes, adjusted
$
30.9
$
29.4
$
61.6
$
53.0
Effective income tax rate
As reported
15.9
%
19.8
%
16.9
%
19.0
%
Adjusted
19.4
%
20.0
%
19.4
%
19.7
%
Net Earnings, as reported
$
134.3
$
117.4
$
263.4
$
218.2
Excess tax benefit from option
exercises
(5.5
)
(0.4
)
(8.1
)
(1.9
)
Net Earnings, adjusted
$
128.8
$
117.0
$
255.3
$
216.3
Weighted Average Diluted Shares
172.6
172.7
172.1
173.7
Diluted Earnings per Share
As reported
$
0.78
$
0.68
$
1.53
$
1.26
Adjusted
$
0.75
$
0.68
$
1.48
$
1.25
Cautionary Statement Regarding Forward-Looking
Statements
The Company desires to take advantage of the “safe harbor”
provisions regarding forward-looking statements of the Private
Securities Litigation Reform Act of 1995 and is filing this
Cautionary Statement in order to do so. From time to time various
forms filed by our Company with the Securities and Exchange
Commission, including our Form 10-K, Form 10-Qs and Form 8-Ks, and
other disclosures, including our overview report, press releases,
earnings releases, analyst briefings, conference calls and other
written documents or oral statements released by our Company, may
contain forward-looking statements. Forward-looking statements
generally use words such as “expect,” “foresee,” “anticipate,”
“believe,” “project,” “should,” “estimate,” “will,” and similar
expressions, and reflect our Company’s expectations concerning the
future. All forecasts and projections are forward-looking
statements. Forward-looking statements are based upon currently
available information, but various risks and uncertainties may
cause our Company’s actual results to differ materially from those
expressed in these statements. The Company undertakes no obligation
to update these statements in light of new information or future
events.
Future results could differ materially from those expressed due
to the impact of changes in various factors. These risk factors
include, but are not limited to: the impact of the COVID-19
pandemic on our business; Russia's invasion of Ukraine, and the
sanctions and actions taken against Russia and Belarus in response
to the invasion; economic conditions in the United States and other
major world economies; our Company’s growth strategies, which
include making acquisitions, investing in new products, expanding
geographically and targeting new industries; changes in currency
translation rates; the ability to meet our customers’ needs and
changes in product demand; supply interruptions or delays; security
breaches; new entrants who copy our products or infringe on our
intellectual property; risks incident to conducting business
internationally; catastrophic events; changes in laws and
regulations; compliance with anti-corruption and trade laws;
changes in tax rates or the adoption of new tax legislation; the
possibility of asset impairments if acquired businesses do not meet
performance expectations; political instability; results of and
costs associated with litigation, administrative proceedings and
regulatory reviews incident to our business; our ability to
attract, develop and retain qualified personnel; the possibility of
decline in purchases from a few large customers of the Contractor
segment; variations in activity in the construction, automotive,
mining and oil and natural gas industries; and the impact of
declines in interest rates, asset values and investment returns on
pension costs and required pension contributions. Please refer to
Item 1A of our Annual Report on Form 10-K for fiscal year 2022 (and
most recent Form 10-Q) for a more comprehensive discussion of these
and other risk factors. These reports are available on the
Company’s website at www.graco.com and
the Securities and Exchange Commission’s website at www.sec.gov. Shareholders, potential investors and
other readers are urged to consider these factors in evaluating
forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements.
Investors should realize that factors other than those
identified above and in Item 1A might prove important to the
Company’s future results. It is not possible for management to
identify each and every factor that may have an impact on the
Company’s operations in the future as new factors can develop from
time to time.
Conference Call
Graco management will hold a conference call, including slides
via webcast, with analysts and institutional investors on Thursday,
July 27, 2023, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s second
quarter results.
A real-time listen-only webcast of the conference call will be
broadcast by Nasdaq. Individuals can access the call and view the
slides on the Company’s website at www.graco.com. Listeners should go to the website
at least 15 minutes prior to the live conference call to install
any necessary audio software.
About Graco
Graco Inc. supplies technology and expertise for the management
of fluids and coatings in both industrial and commercial
applications. It designs, manufactures and markets systems and
equipment to move, measure, control, dispense and spray fluid and
powder materials. A recognized leader in its specialties,
Minneapolis-based Graco serves customers around the world in the
manufacturing, processing, construction and maintenance industries.
For additional information about Graco Inc., please visit us at
www.graco.com.
GRACO INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
EARNINGS (Unaudited)
(In thousands except per share
amounts)
Three Months Ended
Six Months Ended
Jun 30, 2023
Jul 1, 2022
Jun 30, 2023
Jul 1, 2022
Net Sales
$
559,644
$
548,547
$
1,089,290
$
1,042,832
Cost of products sold
268,229
279,487
512,735
519,297
Gross Profit
291,415
269,060
576,555
523,535
Product development
21,286
19,967
41,765
39,045
Selling, marketing and distribution
68,380
62,076
133,763
125,071
General and administrative
44,697
38,337
87,307
82,376
Operating Earnings
157,052
148,680
313,720
277,043
Interest expense
1,798
1,726
3,145
7,013
Other (income) expense, net
(4,365
)
607
(6,394
)
760
Earnings Before Income Taxes
159,619
146,347
316,969
269,270
Income taxes
25,351
28,969
53,535
51,049
Net Earnings
$
134,268
$
117,378
$
263,434
$
218,221
Net Earnings per Common Share
Basic
$
0.80
$
0.69
$
1.56
$
1.29
Diluted
$
0.78
$
0.68
$
1.53
$
1.26
Weighted Average Number of Shares
Basic
168,683
169,128
168,351
169,469
Diluted
172,551
172,698
172,114
173,688
SEGMENT INFORMATION
(Unaudited)
(In thousands)
Three Months Ended
Six Months Ended
Jun 30, 2023
Jul 1, 2022
Jun 30, 2023
Jul 1, 2022
Net Sales
Contractor
$
255,648
$
265,739
$
501,619
$
500,331
Industrial
163,523
158,325
313,713
302,994
Process
140,473
124,483
273,958
239,507
Total
$
559,644
$
548,547
$
1,089,290
$
1,042,832
Operating Earnings
Contractor
$
68,868
$
68,244
$
142,640
$
127,191
Industrial
55,887
55,201
108,657
107,831
Process
43,620
31,057
84,185
58,545
Unallocated corporate (expense)
(11,323
)
(5,822
)
(21,762
)
(16,524
)
Total
$
157,052
$
148,680
$
313,720
$
277,043
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230726455537/en/
Financial Contact: David Lowe, 612-623-6456 Media Contact: Laura
Evanson, 612-656-7435 Laura_L_Evanson@graco.com
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