Graco Inc. (NYSE: GGG) today announced results for the
third quarter ended September 29, 2023.
Summary
$ in millions except per share amounts
Three Months Ended
Nine Months Ended
Sep 29, 2023
Sep 30, 2022
% Change
Sep 29, 2023
Sep 30, 2022
% Change
Net Sales
$
539.7
$
545.6
(1
)%
$
1,629.0
$
1,588.5
3
%
Operating Earnings
163.2
143.1
14
%
476.9
420.2
13
%
Net Earnings
133.1
116.2
15
%
396.6
334.5
19
%
Diluted Net Earnings per Common Share
$
0.77
$
0.67
15
%
$
2.30
$
1.93
19
%
Adjusted (non-GAAP): (1)
Operating Earnings, adjusted
$
162.4
$
143.1
13
%
$
476.1
$
420.2
13
%
Net Earnings, adjusted
$
131.5
$
114.8
15
%
$
386.9
$
331.3
17
%
Diluted Net Earnings per Common Share,
adjusted
$
0.76
$
0.66
15
%
$
2.24
$
1.91
17
%
(1)
Excludes impacts of contingent
consideration fair value adjustments, impairment charges and 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.
- Net sales decreased 1 percent for the quarter. Sales growth in
the Process segment was offset by a decline in the Contractor
segment.
- Gross profit margin rate for the quarter was 5 percentage
points higher than the comparable period last year due to realized
pricing and lower product costs.
- Operating earnings expressed as a percentage of sales for the
quarter increased 4 percentage points to 30 percent.
"Graco achieved record operating earnings for the third
quarter," said Mark Sheahan, Graco's President and CEO. "We saw
softer demand in some of our key end markets that were partially
offset by broad-based sales growth in the Process segment. Global
construction markets weakened and the Industrial segment project
business in EMEA was a headwind. Strong price realization and lower
input costs led to operating margins of 30% or greater in each of
our segments."
Consolidated Results
Net sales for the quarter decreased 1 percent from the
comparable period last year (2 percent at consistent translation
rates). Sales were flat in the Americas and decreased 4 percent in
EMEA (10 percent at consistent translation rates) and 1 percent in
Asia Pacific (sales increased 2 percent at consistent translation
rates). Year-to-date net sales increased 3 percent from the
comparable period last year. Sales increased 5 percent in the
Americas and 2 percent in EMEA (sales were flat at consistent
translation rates), and decreased 4 percent in Asia Pacific (sales
were flat at consistent translation rates). Changes in currency
translation rates increased worldwide sales by $5 million for the
quarter and decreased worldwide sales by $8 million for the year to
date.
Gross profit margin rates for the quarter and year to date
increased from the comparable periods last year mainly due to
realized pricing. The impact of lower product costs further
increased the gross profit margin rate in the quarter from the
comparable period last year.
Operating expenses for the quarter and year to date included a
non-cash goodwill impairment charge of $8 million and a $9 million
gain from the reduction in fair value of contingent consideration
related to the reorganization of a business acquired in 2020.
Excluding these items, total operating expenses increased $4
million (4 percent) for the quarter and $21 million (6 percent) for
the year to date from the comparable periods last year due to
volume and rate-related increases and incremental share-based
compensation.
Interest expense was flat for the quarter and decreased $4
million for the year to date as private placement debt was repaid
in the first quarter last year and in the third quarter of the
current year. Other non-operating income increased $2 million for
the quarter and $9 million for the year to date mostly due to
increased interest income.
The effective income tax rate was up 1 percentage point to 19
percent for the quarter and down 1 percentage point to 18 percent
for the year to date from the comparable periods last year due to
variations 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
Nine Months
Contractor
Industrial
Process
Contractor
Industrial
Process
Net Sales (in millions)
$
245.3
$
157.1
$
137.3
$
746.9
$
470.8
$
411.3
Percentage change from last year
Sales
(7
)%
1
%
10
%
(2
)%
3
%
13
%
Operating earnings
13
%
1
%
40
%
12
%
1
%
43
%
Operating earnings as a percentage of
sales
2023
30
%
35
%
31
%
29
%
35
%
31
%
2022
25
%
35
%
24
%
25
%
35
%
24
%
Components of net sales change by geographic region for the
Contractor segment were as follows:
Three Months
Nine Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
(5
)%
0
%
(1
)%
(6
)%
(1
)%
0
%
(1
)%
(2
)%
EMEA
(17
)%
0
%
6
%
(11
)%
(2
)%
0
%
1
%
(1
)%
Asia Pacific
(9
)%
0
%
(3
)%
(12
)%
(8
)%
0
%
(4
)%
(12
)%
Consolidated
(8
)%
0
%
1
%
(7
)%
(2
)%
0
%
0
%
(2
)%
Contractor segment sales decreased for the quarter and year to
date as favorable response to new product offerings and improved
product availability were unable to offset reduced demand from
slower economic activity in worldwide construction markets. Strong
realized pricing and lower product costs drove the operating margin
rate for this segment 5 percentage points higher for the quarter.
Realized pricing offset higher product costs and drove an increase
of 4 percentage points in the operating margin rate for the year to
date.
Components of net sales change by geographic region for the
Industrial segment were as follows:
Three Months
Nine Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
1
%
0
%
1
%
2
%
8
%
0
%
0
%
8
%
EMEA
(11
)%
0
%
7
%
(4
)%
0
%
0
%
1
%
1
%
Asia Pacific
6
%
0
%
(3
)%
3
%
1
%
0
%
(4
)%
(3
)%
Consolidated
(1
)%
0
%
2
%
1
%
3
%
0
%
0
%
3
%
Industrial segment sales increased 1 percent for the quarter as
improved project activity in Asia Pacific was mostly offset by
declines in finishing system sales in EMEA. Underlying end market
strength in the Americas drove Industrial segment sales higher for
the year to date. The operating margin rate for this segment was
flat for the quarter and year to date.
Components of net sales change by geographic region for the
Process segment were as follows:
Three Months
Nine Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
12
%
0
%
0
%
12
%
17
%
1
%
0
%
18
%
EMEA
14
%
0
%
4
%
18
%
9
%
0
%
1
%
10
%
Asia Pacific
2
%
0
%
(2
)%
0
%
4
%
0
%
(2
)%
2
%
Consolidated
9
%
0
%
1
%
10
%
13
%
1
%
(1
)%
13
%
Process segment sales increased double digits for the quarter
and year to date, although the rate of growth slowed in the third
quarter. The operating margin rate for this segment increased 7
percentage points for both the quarter and year to date from the
comparable periods last year primarily due to price realization and
expense leverage.
Outlook
"Our results reflect underlying business trends that were in
line with our expectations for the year across our businesses,"
said Sheahan. "Despite lower Contractor segment volumes and
uncertain macroeconomic conditions, we remain confident in our
ability to deliver on our 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 contingent consideration fair value
adjustments, impairment charges and 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 operating earnings, adjusted earnings before income taxes,
income taxes, effective income tax rates, net earnings and diluted
earnings per share follows (in millions except per share
amounts):
Three Months Ended
Nine Months Ended
Sep 29, 2023
Sep 30, 2022
Sep 29, 2023
Sep 30, 2022
Operating earnings, as reported
$
163.2
$
143.1
$
476.9
$
420.2
Contingent consideration
(8.6
)
—
(8.6
)
—
Impairment
7.8
—
7.8
—
Operating earnings, adjusted
$
162.4
$
143.1
$
476.1
$
420.2
Earnings before income taxes
$
164.3
$
142.4
$
481.3
$
411.7
Contingent consideration
(8.6
)
—
(8.6
)
—
Impairment
7.8
—
7.8
—
Earnings before income taxes, adjusted
$
163.5
$
142.4
$
480.5
$
411.7
Income taxes, as reported
$
31.2
$
26.2
$
84.7
$
77.3
Excess tax benefit from option
exercises
0.8
1.4
8.9
3.2
Income taxes, adjusted
$
32.0
$
27.6
$
93.6
$
80.5
Effective income tax rate
As reported
19.0
%
18.4
%
17.6
%
18.8
%
Adjusted
19.6
%
19.4
%
19.5
%
19.6
%
Net Earnings, as reported
$
133.1
$
116.2
$
396.6
$
334.5
Contingent consideration
(8.6
)
—
(8.6
)
—
Impairment
7.8
—
7.8
—
Excess tax benefit from option
exercises
(0.8
)
(1.4
)
(8.9
)
(3.2
)
Net Earnings, adjusted
$
131.5
$
114.8
$
386.9
$
331.3
Weighted Average Diluted Shares
172.8
172.8
172.3
173.4
Diluted Earnings per Share
As reported
$
0.77
$
0.67
$
2.30
$
1.93
Adjusted
$
0.76
$
0.66
$
2.24
$
1.91
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,
electronics, aerospace, semiconductor, and agriculture and
construction equipment 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 of our Annual Report on Form 10-K
for fiscal year 2022 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,
October 26, 2023, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s
third 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
Nine Months Ended
Sep 29, 2023
Sep 30, 2022
Sep 29, 2023
Sep 30, 2022
Net Sales
$
539,672
$
545,644
$
1,628,962
$
1,588,476
Cost of products sold
255,148
284,556
767,883
803,853
Gross Profit
284,524
261,088
861,079
784,623
Product development
19,817
19,704
61,582
58,749
Selling, marketing and distribution
60,495
61,386
194,258
186,457
General and administrative
41,823
36,849
129,130
119,225
Contingent consideration
(8,600
)
—
(8,600
)
—
Impairment
7,800
—
7,800
—
Operating Earnings
163,189
143,149
476,909
420,192
Interest expense
1,391
1,542
4,536
8,555
Other (income) expense, net
(2,483
)
(866
)
(8,877
)
(106
)
Earnings Before Income Taxes
164,281
142,473
481,250
411,743
Income taxes
31,158
26,241
84,693
77,290
Net Earnings
$
133,123
$
116,232
$
396,557
$
334,453
Net Earnings per Common Share
Basic
$
0.79
$
0.69
$
2.35
$
1.97
Diluted
$
0.77
$
0.67
$
2.30
$
1.93
Weighted Average Number of Shares
Basic
169,005
169,166
168,569
169,368
Diluted
172,780
172,789
172,336
173,388
SEGMENT INFORMATION
(Unaudited)
(In thousands)
Three Months Ended
Nine Months Ended
Sep 29, 2023
Sep 30, 2022
Sep 29, 2023
Sep 30, 2022
Net Sales
Contractor
$
245,269
$
264,086
$
746,888
$
764,417
Industrial
157,084
156,182
470,797
459,176
Process
137,319
125,376
411,277
364,883
Total
$
539,672
$
545,644
$
1,628,962
$
1,588,476
Operating Earnings
Contractor
$
73,512
$
65,123
$
216,152
$
192,314
Industrial
54,298
53,964
162,955
161,795
Process
43,001
30,638
127,186
89,183
Unallocated corporate (expense)
(8,422
)
(6,576
)
(30,184
)
(23,100
)
Contingent consideration
8,600
—
8,600
—
Impairment
(7,800
)
—
(7,800
)
—
Total
$
163,189
$
143,149
$
476,909
$
420,192
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231025231919/en/
Financial Contact: David Lowe, 612-623-6456 Media Contact:
Meredith Sobieck, 612-623-6427 Meredith_A_Sobieck@graco.com
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