Graco Inc. (NYSE: GGG) today announced results for the
second quarter ended June 28, 2024.
Summary
$ in millions except per share amounts
Three Months Ended
Six Months Ended
Jun 28, 2024
Jun 30, 2023
% Change
Jun 28, 2024
Jun 30, 2023
% Change
Net Sales
$
553.2
$
559.6
(1
)%
$
1,045.4
$
1,089.3
(4
)%
Operating Earnings
161.4
157.1
3
%
294.4
313.7
(6
)%
Net Earnings
133.0
134.3
(1
)%
255.2
263.4
(3
)%
Diluted Net Earnings per Common Share
$
0.77
$
0.78
(1
)%
$
1.48
$
1.53
(3
)%
Adjusted (non-GAAP): (1)
Net Earnings, adjusted
$
132.2
$
128.8
3
%
$
244.8
$
255.3
(4
)%
Diluted Net Earnings per Common Share,
adjusted
$
0.77
$
0.75
3
%
$
1.42
$
1.48
(4
)%
(1)
Excludes the impact 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.
- Net sales for the second quarter decreased 1 percent. Sales
growth in the Contractor segment was unable to offset declines in
the Industrial and Process segments. Regionally, sales decreased in
EMEA and Asia Pacific and increased in the Americas.
- Operating earnings for the second quarter increased 3 percent,
as an improved gross profit margin rate offset lower sales volume
and higher operating expenses.
- Net earnings for the second quarter decreased 1 percent as
higher operating earnings and lower interest expense were unable to
offset the impact of a higher effective income tax rate. On an
adjusted basis, net earnings increased 3 percent.
“Strength in the Contractor segment this quarter was not enough
to offset declines elsewhere, resulting in overall sales
performance that was below our expectations," said Mark Sheahan,
Graco's President and CEO. "New product introductions in Contractor
were well-received and led to sales growth. Declines in Asia
Pacific were driven largely by the China market, where softening
demand is negatively impacting our sealant and adhesives, powder
coating equipment and semiconductor businesses. Operating earnings
performance was strong for the quarter with an expansion of more
than 100 basis points when compared to our second quarter last
year."
Consolidated Results
Net sales for the second quarter decreased 1 percent from the
comparable period last year. Second quarter net sales increased 5
percent in the Americas, decreased 6 percent in EMEA (5 percent at
consistent translation rates) and decreased 18 percent in Asia
Pacific (16 percent at consistent translation rates). Year-to-date
net sales decreased 4 percent from the comparable period last year.
Year-to-date net sales decreased 1 percent in the Americas,
decreased 2 percent in EMEA (3 percent at consistent translation
rates) and decreased 17 percent in Asia Pacific (15 percent at
consistent translation rates). Changes in currency translation
rates decreased worldwide sales by $3 million for the quarter and
$4 million for the year to date.
Gross profit margin rate improved 2 percentage points for the
second quarter and 1 percentage point for the year to date from the
comparable periods last year mostly due to lower product costs and
realized price increases.
Total operating expenses for the second quarter were $5 million
(4 percent) higher than the second quarter last year. The increase
for the quarter included approximately $3 million of expenses
associated with the relocation to a new distribution center and $2
million related to product development, growth initiatives and
other corporate items. Year-to-date operating expenses increased
$10 million (4 percent) compared to the first half last year. The
increase included $5 million related to product development, growth
initiatives and other corporate items, $3 million associated with
the distribution center relocation, and $2 million of incremental
share-based compensation. Operating expense rate-related increases
of approximately 3 percent for both the quarter and year to date
were mostly offset by reductions in sales and earnings-based
expenses.
Interest expense was $1 million lower for the second quarter and
$2 million lower for the year to date compared to the same periods
last year as private placement debt was repaid in the third quarter
of 2023. Other income was flat for the quarter and increased $6
million year-to-date from the comparable periods last year. The
year-to-date increase was largely due to increased interest
income.
The effective income tax rate was up 4 percentage points to 20
percent for the second quarter and down 1 percentage point to 16
percent for the year to date from the comparable periods last year
due primarily to variations in excess tax benefits related to 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)
$
269.6
$
155.7
$
127.9
$
499.7
$
297.7
$
248.0
Percentage change from last year
Sales
5
%
(5
)%
(9
)%
—
%
(5
)%
(9
)%
Operating earnings
22
%
(6
)%
(15
)%
6
%
(10
)%
(14
)%
Operating earnings as a percentage of
sales
2024
31
%
34
%
29
%
30
%
33
%
29
%
2023
27
%
34
%
31
%
28
%
35
%
31
%
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
9%
0%
0%
9%
(1)%
0%
0%
(1)%
EMEA
(7)%
0%
(1)%
(8)%
0%
0%
1%
1%
Asia Pacific
10%
0%
(3)%
7%
3%
0%
(4)%
(1)%
Consolidated
6%
0%
(1)%
5%
0%
0%
0%
0%
Favorable response from new product offerings led to a 5 percent
increase in net sales for the second quarter. Net sales were flat
for the year to date as favorable response from new product
offerings offset softness in worldwide construction markets. The
operating margin rate increased 4 percentage points for the quarter
driven by lower product costs and price realization. For the year
to date, lower product costs and price realization were partially
offset by higher expenses, particularly in new product development,
resulting in a 2 percentage point increase to the operating margin
rate.
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
10%
0%
0%
10%
4%
0%
0%
4%
EMEA
(2)%
0%
(1)%
(3)%
(3)%
0%
0%
(3)%
Asia Pacific
(25)%
0%
(2)%
(27)%
(19)%
0%
(2)%
(21)%
Consolidated
(4)%
0%
(1)%
(5)%
(5)%
0%
0%
(5)%
Industrial segment net sales decreased 5 percent for the second
quarter and year to date, as growth in the Americas was more than
offset by double-digit declines in Asia Pacific. The operating
margin rate was flat for the quarter and decreased 2 percentage
points for the year to date. The favorable effects of product and
channel mix was able to offset higher expenses for the quarter, but
unable to offset higher expenses for the year to date. Changes in
foreign currency translation rates further reduced the operating
margin rate for the 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
(5)%
0%
0%
(5)%
(6)%
0%
0%
(6)%
EMEA
(9)%
0%
0%
(9)%
(8)%
0%
0%
(8)%
Asia Pacific
(19)%
0%
(1)%
(20)%
(20)%
0%
(2)%
(22)%
Consolidated
(9)%
0%
0%
(9)%
(9)%
0%
0%
(9)%
Process segment net sales decreased 9 percent for both the
second quarter and year to date, as sales decreased in most product
applications. Weakness in the semiconductor and industrial
lubrication product applications was notable for both the quarter
and year to date. The operating margin rate for this segment
decreased approximately 2 percentage points for the quarter and
year to date due primarily to unfavorable expense leverage on lower
sales volume.
Outlook
“Given the slow first half of the year in both our Industrial
and Process segments, we are lowering our full-year 2024 worldwide
outlook to low single-digit sales decline on an organic, constant
currency basis,” stated Sheahan. “While overall economic conditions
are challenging, particularly in Asia Pacific, Graco is
well-positioned for the long term as we continue to pursue our
proven growth strategies and invest in our businesses.”
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 adjusted
measurements of income taxes, effective income tax rate, net
earnings and diluted earnings per share follows (in millions except
per share amounts):
Three Months Ended
Six Months Ended
Jun 28, 2024
Jun 30, 2023
Jun 28, 2024
Jun 30, 2023
Earnings before income taxes
$
165.2
$
159.6
$
305.5
$
317.0
Income taxes, as reported
$
32.2
$
25.4
$
50.3
$
53.5
Excess tax benefit from option
exercises
0.8
5.5
10.4
8.1
Income taxes, adjusted
$
33.0
$
30.9
$
60.7
$
61.6
Effective income tax rate
As reported
19.5
%
15.9
%
16.5
%
16.9
%
Adjusted
20.0
%
19.4
%
19.9
%
19.4
%
Net Earnings, as reported
$
133.0
$
134.3
$
255.2
$
263.4
Excess tax benefit from option
exercises
(0.8
)
(5.5
)
(10.4
)
(8.1
)
Net Earnings, adjusted
$
132.2
$
128.8
$
244.8
$
255.3
Weighted Average Diluted Shares
172.5
172.6
172.5
172.1
Diluted Earnings per Share
As reported
$
0.77
$
0.78
$
1.48
$
1.53
Adjusted
$
0.77
$
0.75
$
1.42
$
1.48
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 2023 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, risks relating to the demand for
our products and the level of commercial and industrial activity
worldwide; changes in currency translation rates; international and
domestic political instability; interest rate fluctuations and
changes in credit markets; global sourcing of materials;
interruptions of or intrusions into our information systems;
intellectual property rights; the use of generative artificial
intelligence; conducting business internationally; catastrophic
events; our ability to attract, develop and retain qualified
personnel; public health crises; our growth strategies and
acquisitions; potential goodwill impairment; our ability to compete
effectively; our dependence on a few large customers; our
dependence on cyclical industries; changes in laws and regulations;
climate-related laws, regulations and accords; environmental,
social and governance-related expectations and requirements;
compliance with anti-corruption and trade laws; changes in tax
rates or the adoption of new tax legislation; and costs associated
with legal proceedings. Please refer to Item 1A of our Annual
Report on Form 10-K for fiscal year 2023 (and the 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 2023 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 25, 2024, 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 28, 2024
Jun 30, 2023
Jun 28, 2024
Jun 30, 2023
Net Sales
$
553,243
$
559,644
$
1,045,432
$
1,089,290
Cost of products sold
252,389
268,229
478,381
512,735
Gross Profit
300,854
291,415
567,051
576,555
Product development
21,897
21,286
43,769
41,765
Selling, marketing and distribution
69,001
68,380
135,632
133,763
General and administrative
48,597
44,697
93,295
87,307
Operating Earnings
161,359
157,052
294,355
313,720
Interest expense
634
1,798
1,378
3,145
Other (income) expense, net
(4,453
)
(4,365
)
(12,531
)
(6,394
)
Earnings Before Income Taxes
165,178
159,619
305,508
316,969
Income taxes
32,200
25,351
50,331
53,535
Net Earnings
$
132,978
$
134,268
$
255,177
$
263,434
Net Earnings per Common Share
Basic
$
0.79
$
0.80
$
1.51
$
1.56
Diluted
$
0.77
$
0.78
$
1.48
$
1.53
Weighted Average Number of Shares
Basic
169,100
168,683
168,795
168,351
Diluted
172,486
172,551
172,466
172,114
SEGMENT INFORMATION
(Unaudited)
(In thousands)
Three Months Ended
Six Months Ended
Jun 28, 2024
Jun 30, 2023
Jun 28, 2024
Jun 30, 2023
Net Sales
Contractor
$
269,638
$
255,648
$
499,680
$
501,619
Industrial
155,708
163,523
297,699
313,713
Process
127,897
140,473
248,053
273,958
Total
$
553,243
$
559,644
$
1,045,432
$
1,089,290
Operating Earnings
Contractor
$
84,362
$
68,868
$
150,503
$
142,640
Industrial
52,720
55,887
97,521
108,657
Process
37,279
43,620
72,319
84,185
Unallocated corporate (expense)
(13,002
)
(11,323
)
(25,988
)
(21,762
)
Total
$
161,359
$
157,052
$
294,355
$
313,720
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240724314729/en/
Financial Contact: David M. Lowe, 612-623-6456 Media Contact:
Meredith A. Sobieck, 612-623-6427 Meredith_A_Sobieck@graco.com
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