Graco Inc. (NYSE:GGG) today announced third quarter net earnings of
$30.9 million on net sales of $176.9 million - increases over the
prior year of 7 percent and 19 percent, respectively. Diluted net
earnings per share were $0.44 versus $0.41 last year, a 7 percent
increase. For the first nine months, Graco reported net earnings of
$93.6 million on net sales of $546.1 million - increases over the
prior year of 15 percent and 23 percent, respectively. For both the
third quarter and on a year-to-date basis, the sales growth rate
exceeded the net earnings growth rate as a result of acquisitions.
Acquired operations contributed 11 percentage points of sales
growth for the quarter and attained breakeven operating results.
Year-to-date sales include 11 percentage points of revenue growth
from acquired operations. When compared to the third quarter of
2004, worldwide Contractor Equipment Division sales of $75.3
million increased 10 percent. In the Americas, growth came from
sales to professional paint stores. In the professional paint
channel new product sales and overall business tempo remained
robust in the third quarter. In the home center channel, sales were
slightly lower than last year's third quarter as a result of
changes in inventory stocking practices at Home Depot. Out-the-door
sales remain strong at Home Depot and year-to-date sales in both
channels are still up double-digits from last year. In addition to
the growth in the Americas, Europe continued to impress with
another double-digit increase in sales, a continuation of what was
experienced in the first half of this year. Third quarter
Industrial/Automotive Equipment Division sales of $88.1 million
increased 31 percent versus the same period last year. Acquired
businesses contributed 24 percentage points of the increase. The
remaining 7 percent increase was driven by growth in all three
regions including growth in Europe and a double-digit increase in
Asia Pacific. Year-to-date sales were up in all of the major
product categories. Year-to-date sales are higher in all three
regions and overall business tempo remains solid heading into the
fourth quarter of the year. Third quarter sales for the Lubrication
Equipment Division were $13.6 million, up 3 percent from last year.
Revenue gains continued in all three regions despite difficult
comparisons to last year's record third quarter results.
Lubrication products such as pumps, meters and reels all showed
increases over the prior year. Third quarter sales in the Americas
increased 17 percent to $117.6 million, with continued growth in
all three segments. Acquired businesses contributed 11 percentage
points of the increase. In Europe, net sales of $36.4 million were
23 percent higher than the third quarter of 2004. Acquired
businesses contributed 10 percentage points of the increase; the
remaining increase in Europe was primarily driven by growth in the
Contractor Equipment and Industrial/Automotive segments. In Asia
Pacific, net sales of $22.9 million were 21 percent higher than the
third quarter of 2004. Acquired businesses contributed 11
percentage points of the increase; the remaining increase was
primarily driven by robust Industrial/Automotive Equipment
business. Graco's gross profit margin, expressed as a percentage of
sales, was 53.5 percent for the third quarter, up 190 basis points
from the second quarter but below last year's gross profit margin
of 55.1 percent. When compared to last year's third quarter, the
lower gross profit margin rate can be attributed to the
acquisitions. Before the effects of acquisitions, third quarter
gross profit rate was higher than last year. Graco's operating
profit margin, expressed as a percentage of sales, was 26.5 percent
for the third quarter, versus 29 percent last year. Operating
expenses, when expressed as a percentage of net sales, increased by
90 basis points from last year's third quarter. The increase in
operating expenses as a percentage of sales and the overall decline
in operating profit margin from last year can be attributed to the
acquisitions. Before the effects of acquisitions, third quarter
operating profit margin was higher than last year's. When compared
to 2004 results, the U.S. dollar versus foreign currencies helped
to increase year-to-date net earnings and net sales. Translated at
consistent exchange rates, year-to-date net earnings and net sales
increased by 12 percent and 22 percent, respectively. The impact of
currency translation rates on the third quarter was negligible.
"Graco continues to experience strong growth from our core
businesses this year with increases in sales, net earnings and
earnings per share," said President and Chief Executive Officer
David A. Roberts. "Sales in all three regions and all three
divisions continued to grow even before the favorable impacts of
currency translations and acquisitions. After a softer than
anticipated July, our incoming order rates bounced back in August
and September leading to an increase in backlog at the end of the
period. Our backlog stands at $39 million at the end of the third
quarter, up $4 million from the second quarter and $21 million from
the end of last year. Our Industrial/Automotive Equipment division
continues to experience growth across all regions before the
favorable impact of acquisitions. In the Contractor segment, growth
has been driven by a combination of new product introductions,
favorable housing conditions in North America and higher sales in
Europe. Our sales in the Lubrication Equipment segment have enjoyed
solid gains this year. The two recent acquisitions are contributing
to our sales and cash flow and we are working diligently to execute
our plans for improvements in the profitability of these
businesses. As we move forward with our integration efforts to
align the acquired companies with Graco's global platform, we are
encouraged by the amount of improvements that can be made and the
level of commitment we are receiving from employees, customers and
distributors. We continue to be optimistic about the remainder of
2005 and our prospects for next year." Cautionary Statement
Regarding Forward-Looking Statements A forward-looking statement is
any statement made in this earnings release and other reports that
the Company files periodically with the Securities and Exchange
Commission, as well as in press releases, analyst briefings,
conference calls and the Company's Annual Report to shareholders
which reflects the Company's current thinking on market trends and
the Company's future financial performance at the time they are
made. All forecasts and projections are forward-looking statements.
The Company desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995
by making cautionary statements concerning any forward-looking
statements made by or on behalf of the Company. The Company cannot
give any assurance that the results forecasted in any
forward-looking statement will actually be achieved. 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: economic conditions in the United States and other
major world economies, currency fluctuations, political
instability, changes in laws and regulations, and changes in
product demand. Please refer to Exhibit 99 to the Company's Annual
Report on Form 10-K for fiscal year 2004 for a more comprehensive
discussion of these and other risk factors. Investors should
realize that factors other than those identified above and in
Exhibit 99 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 A
conference call for analysts and institutional investors will be
held Monday, October 24, 2005, at 10:30 a.m. ET to discuss Graco's
third quarter results. Graco management will host the call. A
real-time, listen-only webcast of the conference call will be
broadcast live over the Internet. Individuals wanting to listen 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 1:00 p.m. ET on October 24,
2005, by dialing 800.405.2236, passcode 11041641, if calling within
the U.S. or Canada. The dial-in number for international
participants is 303.590.3000, with the same passcode. The replay by
telephone will be available through October 27, 2005. Graco Inc.
supplies technology and expertise for the management of fluids in
both industrial and commercial applications. It designs,
manufactures and markets systems and equipment to move, measure,
control, dispense and spray fluid 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. -0- *T GRACO INC. AND
SUBSIDIARIES Consolidated Statements of Earnings Third Quarter (13
Nine Months (39 weeks) Ended weeks) Ended -------------------
------------------- (In thousands, except per Sept. 30, Sept. 24,
Sept. 30, Sept. 24, share amounts) 2005 2004 2005 2004 ---------
--------- --------- --------- Net Sales $176,934 $149,066 $546,099
$444,213 Cost of products sold 82,212 66,946 263,219 203,547
--------- --------- --------- --------- Gross Profit 94,722 82,120
282,880 240,666 Product development 7,031 5,231 19,890 15,798
Selling, marketing and distribution 27,581 24,449 82,260 73,976
General and administrative 13,148 9,195 38,257 29,208 ---------
--------- --------- --------- Operating Earnings 46,962 43,245
142,473 121,684 Interest expense 343 115 1,190 384 Other expense,
net 121 113 508 277 --------- --------- --------- ---------
Earnings before Income Taxes 46,498 43,017 140,775 121,023 Income
taxes 15,600 14,200 47,200 39,900 --------- --------- ---------
--------- Net Earnings $30,898 $28,817 $93,575 $81,123 =========
========= ========= ========= Net Earnings per Common Share Basic
$0.45 $0.42 $1.36 $1.17 Diluted $0.44 $0.41 $1.34 $1.15 =========
========= ========= ========= Weighted Average Number of Shares
Basic 68,612 69,176 68,881 69,167 Diluted 69,707 70,243 70,006
70,256 ========= ========= ========= ========= All figures are
subject to audit and adjustment at the end of the fiscal year.
GRACO INC. AND SUBSIDIARIES Segment Information Third Quarter (13
Nine Months (39 weeks) Ended weeks) Ended -------------------
------------------- (In thousands) Sept. 30, Sept. 24, Sept. 30,
Sept. 24, 2005 2004 2005 2004 --------- --------- ---------
--------- Net Sales Industrial / Automotive $88,052 $67,305
$269,696 $197,027 Contractor 75,318 68,620 232,665 209,205
Lubrication 13,564 13,141 43,738 37,981 --------- ---------
--------- --------- Consolidated $176,934 $149,066 $546,099
$444,213 ========= ========= ========= ========= Operating Earnings
Industrial / Automotive $23,618 $22,411 $70,282 $62,886 Contractor
19,370 18,578 60,210 53,874 Lubrication 3,278 3,446 11,524 9,096
Unallocated Corporate 696 (1,190) 457 (4,172) --------- ---------
--------- --------- Consolidated $46,962 $43,245 $142,473 $121,684
========= ========= ========= ========= Segment operating earnings
for 2004 have been restated to conform to 2005, which includes
amortization of intangibles formerly classified as unallocated
corporate. All figures are subject to audit and adjustment at the
end of the fiscal year. GRACO INC. AND SUBSIDIARIES Consolidated
Balance Sheets (In thousands) Sept. 30, 2005 Dec. 31, 2004
-------------- ------------- ASSETS Current Assets Cash and cash
equivalents $14,278 $60,554 Accounts receivable, less allowances of
$5,900 and $5,600 119,856 109,080 Inventories 58,705 40,219
Deferred income taxes 15,247 15,631 Other current assets 1,113
1,742 -------------- ------------- Total current assets 209,199
227,226 Property, Plant and Equipment, net 103,309 94,510 Prepaid
Pension 29,101 27,556 Goodwill 49,129 9,199 Other Intangible
Assets, net 37,098 8,959 Other Assets 4,330 4,264 --------------
------------- Total Assets $432,166 $371,714 ==============
============= LIABILITIES AND SHAREHOLDERS' EQUITY Current
Liabilities Notes payable to banks $16,170 $6,021 Trade accounts
payable 22,531 18,599 Salaries, wages and commissions 20,111 19,804
Dividends payable 8,914 8,990 Other current liabilities 48,410
43,359 -------------- ------------- Total current liabilities
$116,136 $96,773 Retirement Benefits and Deferred Compensation
32,888 33,092 Deferred Income Taxes 11,050 11,012 Shareholders'
Equity Common stock 68,510 68,979 Additional paid-in capital
109,720 100,180 Retained earnings 96,693 62,773 Accumulated
comprehensive income (loss) and other (2,831) (1,095)
-------------- ------------- Total shareholders' equity 272,092
230,837 -------------- ------------- Total Liabilities and
Shareholders' Equity $432,166 $371,714 ============== =============
All figures are subject to audit and adjustment at the end of the
fiscal year. GRACO INC. AND SUBSIDIARIES Consolidated Statements of
Cash Flows (In thousands) Thirty-Nine Weeks Ended
----------------------- Sept. 30, 2005 Sept. 24, 2004
-------------- -------------- Cash Flows from Operating Activities
Net Earnings $93,575 $81,123 Adjustments to reconcile net earnings
to net cash provided by operating activities: Depreciation and
amortization 17,603 13,333 Deferred income taxes (95) (985) Tax
benefit related to stock options exercised 1,900 5,500 Change in:
Accounts receivable (3,762) (3,740) Inventories 1,783 (10,112)
Trade accounts payable (1,385) 2,353 Salaries, wages and
commissions (1,187) 800 Retirement benefits and deferred
compensation (788) (777) Other accrued liabilities 1,898 7,015
Other 660 (152) -------------- -------------- Net cash from
operating activities 110,202 94,358 -------------- --------------
Cash Flows from Investing Activities Property, plant and equipment
additions (12,027) (9,184) Proceeds from sale of property, plant
and equipment 136 126 Capitalized software and other intangible
asset additions (785) (856) Acquisition of businesses, net of cash
acquired (102,797) -- -------------- -------------- Net cash used
in investing activities (115,473) (9,914) --------------
-------------- Cash Flows from Financing Activities Borrowings on
notes payable and lines of credit 75,346 20,943 Payments on notes
payable and lines of credit (64,989) (19,186) Common stock issued
9,573 14,075 Common stock retired (35,238) (32,773) Cash dividends
paid (26,894) (123,460) -------------- -------------- Net cash used
in financing activities (42,202) (140,401) --------------
-------------- Effect of exchange rate changes on cash 1,197 112
-------------- -------------- Net increase (decrease) in cash and
cash equivalents (46,276) (55,845) Cash and cash equivalents
Beginning of year 60,554 112,118 -------------- -------------- End
of period $14,278 $56,273 ============== ============== All figures
are subject to audit and adjustment at the end of the fiscal year.
*T
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