Fourth Quarter Sales Growth in All
Segments
Graco Inc. (NYSE: GGG) today announced results for the
fourth quarter ended December 29, 2023.
Summary
$ in millions except per share amounts
Three Months Ended
Twelve Months Ended
Dec 29, 2023
Dec 30, 2022
% Change
Dec 29, 2023
Dec 30, 2022
% Change
Net Sales
$
566.6
$
555.0
2
%
$
2,195.6
$
2,143.5
2
%
Operating Earnings
169.9
152.5
11
%
646.8
572.7
13
%
Net Earnings
110.0
126.2
(13
)%
506.5
460.6
10
%
Diluted Net Earnings per Common Share
$
0.64
$
0.74
(14
)%
$
2.94
$
2.66
11
%
Adjusted (non-GAAP): (1)
Operating Earnings, adjusted
$
169.9
$
152.5
11
%
$
646.0
$
572.7
13
%
Net Earnings, adjusted
$
137.1
$
124.3
10
%
$
523.9
$
455.5
15
%
Diluted Net Earnings per Common Share,
adjusted
$
0.80
$
0.73
10
%
$
3.04
$
2.63
16
%
(1)
Excludes the impact of a pension
settlement loss, contingent consideration fair value adjustment,
impairment charge, excess tax benefits from stock option exercises
and certain non-recurring tax provision adjustments. See Financial
Results Adjusted for Comparability below for a reconciliation of
adjusted non-GAAP financial measures to GAAP.
- Net sales increased 2 percent for the fourth quarter with sales
growth in all segments.
- The gross profit margin rate for the quarter was approximately
4 percentage points higher than the comparable period last year due
to realized pricing and lower product costs.
- Total operating expenses increased 8 percent for the
quarter.
- Operating earnings expressed as a percentage of sales for the
quarter increased 3 percentage points to 30 percent.
- Other non-operating expenses for the quarter included a
non-cash pension settlement loss of $42 million in connection with
the transfer of certain pension obligations to an insurance
company.
"Graco reported record fourth quarter and annual sales and
operating earnings with sales growth in all segments for the
quarter," said Mark Sheahan, Graco's President and CEO. "The
Industrial and Process segments achieved record annual sales and
operating earnings while Contractor achieved record operating
earnings for the year despite a challenging environment. The
Contractor segment saw fourth quarter sales growth driven by new
product introductions and continued strength in both the protective
coatings and spray foam product categories. I am proud of the work
our teams have done and want to thank our employees, customers and
vendors for another great year."
Consolidated Results
Net sales for the quarter increased 2 percent from the
comparable period last year (1 percent at consistent translation
rates). Sales increased 3 percent in the Americas and 5 percent in
EMEA (sales were flat at consistent translation rates) and
decreased 5 percent in Asia Pacific (4 percent at consistent
translation rates). Net sales for the year increased 2 percent from
the comparable period last year with increases of 4 percent in the
Americas and 3 percent in EMEA (sales were flat at consistent
translation rates), offset by a 4 percent decrease in Asia Pacific
(1 percent at consistent translation rates). Changes in currency
translation rates increased worldwide sales by $6 million for the
quarter and decreased worldwide sales by $2 million for the
year.
Gross profit margin rates increased approximately 4 percentage
points for the quarter and year 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.
Total operating expenses for the fourth quarter increased $10
million (8 percent) from the comparable period last year, including
approximately $3 million (3 percentage points) of increases in
sales and earnings-based expenses. Total operating expenses for the
year increased $29 million (6 percent) compared to last year. The
increase includes increased spending on product development and
other growth initiatives of $7 million, incremental share-based
compensation of $6 million and higher sales and earnings-based
expenses of $4 million.
Interest expense was flat for the quarter and decreased $5
million compared to last year as private placement debt was repaid
in the first quarter of 2022 and in the third quarter of 2023.
Other non-operating expenses for the quarter and year included a
non-cash pension settlement loss of $42 million in connection with
the transfer of certain pension obligations to an insurance
company. Partially offsetting the pension settlement loss were
increases in interest income of approximately $4 million for the
quarter and $11 million for the year.
The effective income tax rate was 14 percent for the quarter and
17 percent for the year. Adjusted to exclude certain non-recurring
items (see Financial Results Adjusted for Comparability below), the
adjusted effective income tax rate was 19 percent for the quarter
and year.
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
Twelve Months
Contractor
Industrial
Process
Contractor
Industrial
Process
Net Sales (in millions)
$
238.8
$
192.0
$
135.9
$
985.7
$
662.8
$
547.1
Percentage change from last year
Sales
2
%
1
%
4
%
(1
)%
2
%
11
%
Operating earnings
20
%
2
%
15
%
14
%
1
%
35
%
Operating earnings as a percentage of
sales
2023
29
%
37
%
28
%
29
%
35
%
30
%
2022
25
%
37
%
25
%
25
%
36
%
25
%
Components of net sales change by geographic region for the
Contractor segment were as follows:
Three Months
Twelve Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
0
%
0
%
0
%
0
%
(1
)%
0
%
0
%
(1
)%
EMEA
3
%
0
%
5
%
8
%
(1
)%
0
%
2
%
1
%
Asia Pacific
5
%
0
%
(1
)%
4
%
(5
)%
0
%
(4
)%
(9
)%
Consolidated
1
%
0
%
1
%
2
%
(1
)%
0
%
0
%
(1
)%
Contractor segment sales increased 2 percent for the quarter and
decreased 1 percent for the year. Favorable response to new product
offerings was offset for the quarter and year by slower economic
activity in worldwide construction markets. The operating margin
rate for this segment improved 4 percentage points for both the
quarter and year. Lower product costs and realized pricing combined
to drive the operating margin rate higher for the quarter. Realized
pricing drove most of the improvement in the operating margin rate
for the year.
Components of net sales change by geographic region for the
Industrial segment were as follows:
Three Months
Twelve Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
14
%
0
%
1
%
15
%
10
%
0
%
0
%
10
%
EMEA
(5
)%
0
%
5
%
0
%
(2
)%
0
%
3
%
1
%
Asia Pacific
(13
)%
0
%
0
%
(13
)%
(3
)%
0
%
(3
)%
(6
)%
Consolidated
(1
)%
0
%
2
%
1
%
2
%
0
%
0
%
2
%
Industrial segment sales increased 1 percent for the quarter and
2 percent for the year as continued end market strength in the
Americas was mostly offset by lower finishing system sales in EMEA
and Asia Pacific. The operating margin rate for this segment was
flat for the quarter and decreased 1 percentage point for the year
as realized pricing and lower product costs were offset by
unfavorable changes in currency translation rates and higher
operating expenses.
Components of net sales change by geographic region for the
Process segment were as follows:
Three Months
Twelve Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
1
%
0
%
0
%
1
%
13
%
0
%
0
%
13
%
EMEA
10
%
0
%
3
%
13
%
10
%
0
%
1
%
11
%
Asia Pacific
7
%
0
%
0
%
7
%
5
%
0
%
(2
)%
3
%
Consolidated
4
%
0
%
0
%
4
%
11
%
0
%
0
%
11
%
Process segment sales increased in all businesses and regions
for the quarter and year. The operating margin rate for this
segment increased 3 percentage points for the quarter, primarily
due to realized pricing and lower product costs. Expense leverage
drove an additional 2 percentage point increase in the operating
margin rate for the year.
Outlook
“As we head into a new year, the business is performing well,
and demand levels generally remain steady in an uncertain
macroeconomic environment,” said Sheahan. "We are initiating
full-year 2024 revenue guidance of low single-digits on an organic,
constant currency basis as we will continue to focus on our core
strategies of new product development, expanding distribution,
entering new markets and targeting strategic acquisitions to drive
shareholder value.”
Financial Results Adjusted for Comparability
Excluding the impact of pension settlement losses, contingent
consideration fair value adjustments, impairment charges, excess
tax benefits from stock option exercises and certain non-recurring
tax provision adjustments presents a more consistent basis for
comparison of financial results. A calculation of the non-GAAP
adjusted measurements of operating earnings, 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
Twelve Months Ended
Dec 29, 2023
Dec 30, 2022
Dec 29, 2023
Dec 30, 2022
Operating earnings, as reported
$
169.9
$
152.5
$
646.8
$
572.7
Contingent consideration
—
—
(8.6
)
—
Impairment
—
—
7.8
—
Operating earnings, adjusted
$
169.9
$
152.5
$
646.0
$
572.7
Earnings before income taxes
$
127.6
$
154.0
$
608.8
$
565.7
Pension settlement loss
42.1
—
42.1
—
Contingent consideration
—
—
(8.6
)
—
Impairment
—
—
7.8
—
Earnings before income taxes, adjusted
$
169.7
$
154.0
$
650.1
$
565.7
Income taxes, as reported
$
17.6
$
27.8
$
102.3
$
105.1
Pension settlement tax effect
8.8
—
8.8
—
Other non-recurring tax benefit
4.8
—
4.8
—
Excess tax benefit from option
exercises
1.4
1.9
10.3
5.1
Income taxes, adjusted
$
32.6
$
29.7
$
126.2
$
110.2
Effective income tax rate
As reported
13.8
%
18.1
%
16.8
%
18.6
%
Adjusted
19.2
%
19.3
%
19.4
%
19.5
%
Net Earnings, as reported
$
110.0
$
126.2
$
506.5
$
460.6
Pension settlement loss, net
33.3
—
33.3
—
Contingent consideration
—
—
(8.6
)
—
Impairment
—
—
7.8
—
Other non-recurring tax benefit
(4.8
)
—
(4.8
)
—
Excess tax benefit from option
exercises
(1.4
)
(1.9
)
(10.3
)
(5.1
)
Net Earnings, adjusted
$
137.1
$
124.3
$
523.9
$
455.5
Weighted Average Diluted Shares
171.8
171.4
172.2
172.9
Diluted Earnings per Share
As reported
$
0.64
$
0.74
$
2.94
$
2.66
Adjusted
$
0.80
$
0.73
$
3.04
$
2.63
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 a public heath
crisis, such as an epidemic or pandemic, on our business; political
instability, including 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; 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 Tuesday,
January 30, 2024, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s
fourth 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
Twelve Months Ended
Dec 29, 2023
Dec 30, 2022
Dec 29, 2023
Dec 30, 2022
Net Sales
$
566,643
$
555,045
$
2,195,606
$
2,143,521
Cost of products sold
266,701
282,229
1,034,585
1,086,082
Gross Profit
299,942
272,816
1,161,021
1,057,439
Product development
21,240
21,259
82,822
80,008
Selling, marketing and distribution
66,455
64,491
260,712
250,948
General and administrative
42,313
34,558
171,444
153,783
Contingent consideration
—
—
(8,600
)
—
Impairment
—
—
7,800
—
Operating Earnings
169,934
152,508
646,843
572,700
Interest expense
656
1,342
5,191
9,897
Other (income) expense, net
41,728
(2,815
)
32,850
(2,921
)
Earnings Before Income Taxes
127,550
153,981
608,802
565,724
Income taxes
17,598
27,789
102,291
105,079
Net Earnings
$
109,952
$
126,192
$
506,511
$
460,645
Net Earnings per Common Share
Basic
$
0.65
$
0.75
$
3.01
$
2.73
Diluted
$
0.64
$
0.74
$
2.94
$
2.66
Weighted Average Number of Shares
Basic
168,061
167,706
168,442
168,952
Diluted
171,788
171,406
172,199
172,893
SEGMENT INFORMATION
(Unaudited)
(In thousands)
Three Months Ended
Twelve Months Ended
Dec 29, 2023
Dec 30, 2022
Dec 29, 2023
Dec 30, 2022
Net Sales
Contractor
$
238,789
$
234,643
$
985,675
$
999,060
Industrial
191,985
190,171
662,785
649,347
Process
135,869
130,231
547,146
495,114
Total
$
566,643
$
555,045
$
2,195,606
$
2,143,521
Operating Earnings
Contractor
$
69,243
$
57,519
$
285,394
$
249,833
Industrial
71,098
69,503
234,054
231,298
Process
38,086
33,161
165,273
122,344
Unallocated corporate (expense)
(8,493
)
(7,675
)
(38,678
)
(30,775
)
Contingent consideration
—
—
8,600
—
Impairment
—
—
(7,800
)
—
Total
$
169,934
$
152,508
$
646,843
$
572,700
GRACO INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
Dec 29, 2023
Dec 30, 2022
ASSETS
Current Assets
Cash and cash equivalents
$
537,951
$
339,196
Accounts receivable, less allowances of
$5,300 and $7,000
354,439
346,010
Inventories
438,349
476,790
Other current assets
35,070
43,624
Total current assets
1,365,809
1,205,620
Property, Plant and Equipment, net
741,713
607,609
Goodwill
370,228
368,171
Other Intangible Assets, net
126,258
137,507
Operating Lease Assets
18,768
29,785
Deferred Income Taxes
61,381
57,090
Other Assets
37,850
33,118
Total Assets
$
2,722,007
$
2,438,900
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current Liabilities
Notes payable to banks
$
30,036
$
20,974
Trade accounts payable
72,214
84,218
Salaries and incentives
64,802
63,969
Dividends payable
42,789
39,963
Other current liabilities
185,359
190,793
Total current liabilities
395,200
399,917
Long-term Debt
—
75,000
Retirement Benefits and Deferred
Compensation
80,347
61,672
Operating Lease Liabilities
11,785
21,057
Deferred Income Taxes
8,215
9,443
Other Non-current Liabilities
2,235
12,159
Shareholders’ Equity
Common stock
167,946
167,702
Additional paid-in-capital
863,336
784,477
Retained earnings
1,227,938
976,851
Accumulated other comprehensive income
(loss)
(34,995
)
(69,378
)
Total shareholders’ equity
2,224,225
1,859,652
Total Liabilities and Shareholders’
Equity
$
2,722,007
$
2,438,900
GRACO INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS (Unaudited)
(In thousands)
Year Ended
Dec 29, 2023
Dec 30, 2022
Cash Flows From Operating
Activities
Net Earnings
$
506,511
$
460,645
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and amortization
74,321
65,997
Deferred income taxes
(8,502
)
(9,997
)
Share-based compensation
30,229
24,695
Pension settlement loss
42,129
—
Contingent consideration
(8,600
)
—
Impairment
7,800
—
Change in
Accounts receivable
(3,245
)
(29,944
)
Inventories
42,716
(95,691
)
Trade accounts payable
(12,348
)
4,195
Salaries and incentives
(2,158
)
(18,442
)
Retirement benefits and deferred
compensation
(13,661
)
(18,674
)
Other accrued liabilities
(5,269
)
(4,191
)
Other
1,094
(1,199
)
Net cash provided by operating
activities
651,017
377,394
Cash Flows From Investing
Activities
Property, plant and equipment
additions
(184,775
)
(201,161
)
Acquisition of businesses, net of cash
acquired
—
(25,296
)
Other
(499
)
(362
)
Net cash used in investing activities
(185,274
)
(226,819
)
Cash Flows From Financing
Activities
Borrowings on short-term lines of credit,
net
9,725
(18,252
)
Payments on long-term debt
(75,000
)
(75,000
)
Payments of debt issuance costs
(1,025
)
—
Common stock issued
60,182
35,619
Common stock repurchased
(102,344
)
(233,426
)
Taxes paid related to net share settlement
of equity awards
(1,225
)
(1,219
)
Cash dividends paid
(158,323
)
(142,125
)
Net cash used in financing activities
(268,010
)
(434,403
)
Effect of exchange rate changes on
cash
1,022
(1,278
)
Net increase (decrease) in cash and cash
equivalents
198,755
(285,106
)
Cash and Cash Equivalents
Beginning of year
339,196
624,302
End of year
$
537,951
$
339,196
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240129123620/en/
Financial Contact: David Lowe, 612-623-6456 Media Contact:
Meredith Sobieck, 612-623-6427 Meredith_A_Sobieck@graco.com
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