Sales Growth in All Segments
Graco Inc. (NYSE: GGG) today announced results for the
second quarter ended June 29, 2018.
Summary
$ in millions except per share amounts
Three Months Ended Six Months Ended Jun
29, Jun 30, % Jun 29, Jun
30, % 2018 2017 Change 2018 2017 Change Net Sales $
424.6 $ 379.5 12 % $ 830.9 $ 720.1 15 % Operating Earnings 113.4
100.4 13 % 225.1 187.8 20 % Net Earnings 89.1 79.8 12 % 174.7 140.6
24 % Diluted Net Earnings per Common Share $ 0.51
$ 0.46 11 % $ 1.00
$ 0.81 23 % Adjusted (non-GAAP): (1)
Net Earnings, adjusted $ 82.7 $ 66.2 25 % $ 166.8 $ 123.4 35 %
Diluted Net Earnings per Common Share, adjusted $ 0.48 $ 0.38 26 %
$ 0.96 $ 0.71 35 % (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 and year to date
increased double-digit percentages with growth in all segments.
Favorable currency translation and acquired operations contributed
a total of 6 percentage points of sales growth to both the quarter
and year to date.
- Gross margin rates remained strong, up
slightly compared to the comparable periods last year.
- Operating expenses increased 12 percent
for the quarter and year to date, including a total of 4 percentage
points from currency translation and acquired operations.
- Other expense increased $4 million for
the quarter and $3 million year to date, mostly due to exchange
losses on net assets of foreign operations.
- The effective income tax rate decreased
by 1 percentage point for the quarter and 3 percentage points for
the year to date, as the net benefits of U.S. federal income tax
reform were partially offset by the impact of decreases in excess
tax benefits from option exercises.
- Excess tax benefits from option
exercises decreased compared to last year by $7 million for the
quarter and $9 million for the year to date.
"With the help of our employees and channel partners around the
world, we again achieved record sales and operating earnings for
the quarter, led by growth in the Process and Contractor segments,"
said Patrick J. McHale, Graco's President and CEO. "Our Industrial
segment moderated in the quarter, however their year-to-date
results were in line with our expectations. Profitability remained
strong in the second quarter, reflecting improved sales volumes,
ongoing solid factory performance and good operating expense
leverage.”
Consolidated Results
Sales for the quarter increased 12 percent (9 percent at
consistent translation rates), with increases of 11 percent in the
Americas, 11 percent in EMEA (4 percent at consistent translation
rates) and 15 percent in Asia Pacific (10 percent at consistent
translation rates). Sales for the year to date increased 15 percent
(12 percent at consistent translation rates), with increases of 11
percent in the Americas, 19 percent in EMEA (9 percent at
consistent translation rates) and 25 percent in Asia Pacific (19
percent at consistent translation rates).
Changes in currency translation rates increased sales by
approximately $9 million (3 percentage points) for the quarter and
$23 million (3 percentage points) year to date. Acquired operations
contributed 3 percentage points of sales growth for the quarter and
year to date, including 6 percentage points of growth in EMEA.
Gross profit margin rates improved slightly for the quarter and
year to date. Favorable effects from currency translation and
realized pricing were mostly offset by the unfavorable effects of
lower gross margins from acquired operations and changes in product
and channel mix.
Total operating expenses for the quarter increased $12 million
(12 percent) compared to the second quarter last year. The increase
includes approximately $2 million related to currency translation,
$2 million from acquired operations, $4 million of increases in
costs directly based on sales and earnings and a $1 million
increase in market-driven share-based compensation. Year-to-date
operating expenses increased $25 million (12 percent) compared to
the first half last year. The increase includes approximately $5
million related to currency translation, $4 million from acquired
operations, $9 million of increases in costs directly based on
sales and earnings and a $2 million increase in market-driven
share-based compensation.
Other expense for the quarter and year to date includes $3
million and $2 million of exchange losses on net assets of foreign
operations, respectively, compared to small gains in the comparable
periods last year.
The effective income tax rate was 15 percent for the quarter and
18 percent for the year to date, down 1 percentage point and 3
percentage points from the comparable periods last year,
respectively. Adjusted to exclude the impact of excess tax benefits
related to stock option exercises (see Financial Results Adjusted
for Comparability below), the effective income tax rate was
approximately 21½ percent for both the quarter and year to date, 9
percentage points lower than the comparable periods last year due
to the net effects of U.S. federal income tax reform legislation
passed at the end of 2017.
Segment Results
Management assesses performance of segments by reference to
operating earnings excluding unallocated corporate expenses and
asset impairments. 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 Industrial
Process Contractor Industrial
Process Contractor Net Sales (in millions) $
190.5 $ 85.1 $ 149.1 $ 385.7 $ 165.1 $ 280.2 Percentage change from
last year Sales 9 % 16 % 14 % 16 % 15 % 14 % Operating earnings 9 %
27 % 14 % 18 % 29 % 17 % Operating earnings as a percentage of
sales
2018
35 % 20 % 26 % 35 % 21 % 25 %
2017
35 % 18 % 26 % 35 % 19 % 24 %
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 4% 0% 0% 4% 6% 0% 0%
6% EMEA (5)% 11% 7% 13% 2% 11% 11% 24% Asia Pacific 2% 5% 5% 12%
12% 6% 7% 25% Consolidated 1% 4% 4% 9% 6% 5% 5% 16%
Industrial segment sales growth included $8 million for the
quarter and $17 million for the year to date from acquired
operations. Sales growth for the quarter was modest due to timing
of finishing system sales and other project activity. Strong
finishing systems sales in the first quarter boosted year to date
sales growth. Operating margin rates for the quarter and year to
date were consistent with comparable periods last year. The
favorable effects of translation and product and channel mix were
offset by the effects of purchase accounting and lower operating
margins in acquired operations.
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 16% 2% 0% 18% 14% 2%
0% 16% EMEA (2)% 1% 5% 4% (5)% 1% 6% 2% Asia Pacific 18% 1% 4% 23%
21% 1% 5% 27% Consolidated 13% 1% 2% 16% 11% 1% 3% 15%
The Process segment had sales growth in all product
applications. Strong sales growth continued in the segment's
Lubrication division, and the Oil and Natural Gas division had
solid growth in the second quarter. Operating margin rates for this
segment improved by 2 percentage points for both the quarter and
year to date, driven by higher sales volume and expense
leverage.
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 11% 2% 0% 13% 10% 2%
0% 12% EMEA 4% 0% 8% 12% 10% 0% 11% 21% Asia Pacific 22% 0% 4% 26%
17% 0% 5% 22% Consolidated 11% 1% 2% 14% 11% 1% 2% 14%
Contractor segment sales increased in all channels. Operating
margin rates for the quarter and year to date improved slightly
compared to the comparable periods last year. Favorable effects of
translation and expense leverage were offset by increases in volume
and earnings-based incentive costs.
Outlook
"Demand remains broad-based across products and geographies,"
stated McHale. "We are holding to our outlook of mid-to-high
single-digit organic sales growth on a constant currency basis
worldwide for the full year 2018. Although we anticipate second
half pressures from tariffs, material costs and currency, we are
encouraged by the strong levels of demand in many of our key end
markets. As a result, we believe Graco is well positioned to
deliver another record year of sales and earnings in 2018."
Financial Results Adjusted for Comparability
Excluding the impact of tax benefits related to 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
29, Jun 30, Jun 29, Jun 30, 2018 2017
2018 2017 Earnings before income taxes $ 105.2 $ 95.6
$ 212.7 $ 177.2 Income taxes, as reported $
16.1 $ 15.8 $ 38.0 $ 36.6 Excess tax benefit from option exercises
6.4 13.6 7.9 17.2
Income taxes, adjusted $ 22.5 $ 29.4 $ 45.9
$ 53.8 Effective income tax rate As reported
15.3 % 16.5 % 17.9 % 20.7 % Adjusted 21.4 % 30.7 % 21.6 % 30.4 %
Net Earnings, as reported $ 89.1 $ 79.8 $ 174.7 $ 140.6
Excess tax benefit from option exercises (6.4 ) (13.6
) (7.9 ) (17.2 ) Net Earnings, adjusted $ 82.7
$ 66.2 $ 166.8 $ 123.4 Weighted Average
Diluted Shares 173.3 173.8 174.5 173.5 Diluted Earnings per Share
As reported $ 0.51 $ 0.46 $ 1.00 $ 0.81 Adjusted $ 0.48 $ 0.38 $
0.96 $ 0.71
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 2017 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: our Company’s growth strategies,
which include making acquisitions, investing in new products,
expanding geographically and targeting new industries; economic
conditions in the United States and other major world economies;
changes in tax rates or the adoption of new tax legislation;
changes in currency translation rates; changes in laws and
regulations; compliance with anti-corruption and trade laws; new
entrants who copy our products or infringe on our intellectual
property; risks incident to conducting business internationally;
the ability to meet our customers’ needs and changes in product
demand; supply interruptions or delays; security breaches; 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; 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; our ability to attract,
develop and retain qualified personnel; and catastrophic events.
Please refer to Item 1A of our Annual Report on Form 10-K for
fiscal year 2017 (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 26, 2018, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s second
quarter results.
A real-time webcast of the conference call will be broadcast
live over the internet. Individuals wanting to listen and view
slides can access the call at 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.
For those unable to listen to the live event, a replay will be
available soon after the conference call at Graco’s website, or by
telephone beginning at approximately 2 p.m. ET on July 26, 2018, by
dialing 888-203-1112, Conference ID #4411660, if calling within the
U.S. or Canada. The dial-in number for international participants
is 719-457-0820, with the same Conference ID #. The replay by
telephone will be available through July 30, 2018.
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 or on Twitter
@GracoInc.
GRACO INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF EARNINGS (Unaudited)
(In thousands except per share
amounts)
Three Months Ended Six Months Ended Jun
29, Jun 30, Jun 29, Jun 30, 2018 2017
2018 2017 Net Sales $ 424,570 $ 379,483 $ 830,918 $ 720,073 Cost of
products sold 194,667 174,973 378,594
329,718 Gross Profit 229,903 204,510 452,324 390,355 Product
development 16,112 14,662 31,401 28,921 Selling, marketing and
distribution 62,949 55,583 125,471 109,972 General and
administrative 37,464 33,855 70,378
63,617 Operating Earnings 113,378 100,410 225,074 187,845 Interest
expense 3,891 4,154 7,124 8,209 Other expense, net 4,251
652 5,286 2,457 Earnings Before Income Taxes
105,236 95,604 212,664 177,179 Income taxes 16,096
15,776 38,014 36,619 Net Earnings $ 89,140 $ 79,828 $
174,650 $ 140,560 Net Earnings (Loss) per Common Share Basic $ 0.53
$ 0.48 $ 1.04 $ 0.84 Diluted $ 0.51 $ 0.46 $ 1.00 $ 0.81 Weighted
Average Number of Shares Basic 167,260 167,404 168,166 167,354
Diluted 173,265 173,782 174,457 173,459
SEGMENT
INFORMATION (Unaudited)
(In thousands)
Three Months Ended Six Months Ended Jun
29, Jun 30, Jun 29, Jun 30, 2018 2017
2018 2017 Net Sales Industrial $ 190,459 $ 174,868 $ 385,655 $
331,258 Process 85,059 73,399 165,094 143,428 Contractor
149,052 131,216 280,169
245,387 Total $ 424,570 $ 379,483 $ 830,918
$ 720,073 Operating Earnings Industrial $ 67,030 $
61,596 $ 136,155 $ 115,331 Process 17,065 13,418 34,767 26,881
Contractor 38,382 33,759 69,793 59,778 Unallocated corporate
(expense) (9,099 ) (8,363 ) (15,641 )
(14,145 ) Total $ 113,378 $ 100,410 $ 225,074
$ 187,845
The Consolidated Balance Sheets, Consolidated Statements of Cash
Flows and Management's Discussion and Analysis are available in our
Quarterly Report on Form 10-Q on our website at www.graco.com.
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version on businesswire.com: https://www.businesswire.com/news/home/20180725005815/en/
Graco Inc.Financial Contact:Mark Sheahan,
612-623-6656orMedia Contact:Charlotte Boyd,
612-623-6153Charlotte_M_Boyd@graco.com
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