Graco Inc. (NYSE: GGG) today announced results for the quarter and
nine months ended September 26, 2008. Third Quarter Highlights $ in
millions except per share amounts � Thirteen Weeks Ended �
Thirty-nine Weeks Ended Sep 26, � Sep 28, � % Sep 26, � Sep 28, � %
2008 2007 Change 2008 2007 Change � Net Sales $ 207.2 $ 207.3 (0 )%
$ 650.6 $ 636.1 2 �% Net Earnings 32.8 39.3 (17 )% 110.8 117.2 (5
)% Diluted Net Earnings per Common Share $ 0.54 $ 0.60 (10 )% $
1.81 $ 1.75 3 �% Growth in Europe and Asia offset decreases in
contractor and lubrication sales in the Americas. Industrial
segment sales increased in all regions. Continued investment in
long-term growth strategies of product and market development.
Acquisitions of Airlessco� and LubeSci assets will complement our
contractor and industrial lubrication businesses. �While tough
economic conditions persist, we are confident that our strategies
and actions are positioning the Company for future profitable
growth. Our earnings and cash flow are strong and we continue to
aggressively fund growth initiatives for new products and
international expansion,� said Patrick J. McHale, President and
Chief Executive Officer. Consolidated Results Sales for the quarter
were flat compared to last year and increased 2 percent
year-to-date. Translated at consistent exchange rates, sales for
both the quarter and year-to-date were down slightly from the
comparable periods in 2007. Sales include $9 million from GlasCraft
operations from the date of acquisition, including $3.5 million in
the third quarter. In the Americas, sales of $113 million for the
quarter and $361 million year-to-date were 9 percent and 7 percent
lower than last year, respectively. In Europe, sales of $58 million
for the quarter and $189 million year-to-date were 9 percent and 18
percent higher than last year, respectively. Translated at
consistent exchange rates, sales in Europe increased 2 percent for
the quarter and 7 percent for the year-to-date. In the Asia Pacific
region, sales of $37 million for the quarter were 23 percent higher
than last year and year-to-date sales of $101 million were up 14
percent. Translated at consistent exchange rates, sales in Asia
Pacific increased by 22 percent for the quarter and 11 percent for
the year-to-date. Gross profit margin, expressed as a percentage of
sales, was 53.2 percent for the quarter, close to last year�s
percentage of 53.4 percent. Changes in geographic and product sales
mix in Europe affected the margin rate for the quarter.
Year-to-date gross profit margin percentage was 53.9 percent, up
from 53.1 percent last year. Favorable currency translation rates
added 1.1 percentage points to the year-do-date gross profit margin
rate. The effects of higher material and other costs on gross
margin rate have been offset by the impact of pricing and
manufacturing efficiencies. Operating expenses are up 11 percent
for the quarter and 12 percent for the year-to-date. The effects of
currency translation contributed approximately 2 percentage points
of the increase for the quarter and 3 percentage points
year-to-date. Operating expenses in 2008 include $1.5 million for
the quarter from acquired GlasCraft operations and $4 million
year-to-date. Continued strategic investments in product and market
development also contributed to the increase in operating expenses,
including expenses related to the introduction of new product lines
in the home center channel, new product development teams and
additional sales and marketing personnel in developing countries.
Compared to last year, product development expense was up $2.5
million for the quarter and $3.7 million year-to-date. Year-to-date
interest expense is $3.5 million higher than last year due to
borrowings used for the purchase and retirement of Company shares
and for business acquisitions. The Company�s effective tax rate for
the third quarter was 34 percent, up from 32 percent last year. The
lower rate in 2007 resulted from expiring statutes of limitations
and a higher than expected benefit upon filing of prior year tax
returns. The year-to-date effective tax rate of 33 percent is
slightly lower than last year due to completion of the examination
of the Company�s income tax returns in the first quarter of 2008.
Segment Results Certain measurements of segment operations are
summarized below: � � Thirteen Weeks � Thirty-nine Weeks Industrial
� Contractor � Lubrication Industrial � Contractor � Lubrication �
Net sales (in millions) $ 117.7 $ 67.8 $ 21.8 $ 365.0 $ 216.0 $
69.6 Net sales percentage change from last year 9 �% (12 )% (5 )%
12 �% (10 )% 2 �% Operating earnings as a percentage of net sales
��2008 30 �% 22 �% 16 �% 32 �% 23 �% 18 �% ��2007 35 �% 27 �% 11 �%
34 �% 28 �% 11 �% Strong sales in Asia Pacific (up 27 percent)
drove the increase in Industrial segment sales for the quarter.
Sales in this segment were 5 percent higher in the Americas and in
Europe, although the increase in Europe came from currency
translation. Year-to-date sales in this segment are up 18 percent
in Europe (approximately 11 percentage points from currency
translation), 11 percent in Asia Pacific and 8 percent in the
Americas. Most of the sales growth in this segment came from high
performance coatings and foam products. Operating earnings in this
segment were affected by selling and product development
initiatives and costs and expenses resulting from acquisition and
integration related activities. In the Contractor segment, sales
growth in Europe lessened the impact of continued softness in both
the North American paint store and home center channels. Sales for
the quarter in this segment were up 16 percent in Europe (including
6 percentage points from currency translation), flat in Asia
Pacific and down 22 percent in the Americas. Year-to-date increases
in Europe (18 percent increase, including 11 percentage points from
currency translation) and in Asia Pacific (11 percent increase,
including 2 percentage points from currency translation) were not
enough to offset the 21 percent decrease in the Americas. The
decrease in sales without a corresponding decrease in expenses had
a large impact on the operating earnings of this segment. Strategic
spending in this segment was for developing products for new
markets and the launch and production of new paint sprayer units in
the home center channel. In the Lubrication segment, third quarter
sales increases in Europe and Asia Pacific were not enough to
offset a decrease in the Americas. Year-to-date, the increases in
Europe and Asia Pacific offset the decrease in the Americas.
Improvement in year-to-date operating profitability is related to
the integration and consolidation of Lubrication operations
completed in 2007, although segment profitability has also been
affected by a sales decline in the higher-margin vehicle services
product line. Outlook �While economic conditions have made it
difficult to see progress in our business, we continue to implement
our strategies for growth,� said Patrick J. McHale, President and
Chief Executive Officer. �The addition of the Airlessco� product
line in October complements our contractor business and the LubeSci
acquisition in late August expands our presence in the industrial
lubrication business. The strength of our Industrial and
international business thus far has softened the effect on our
financial results. As difficult economic conditions spread to other
parts of the world, we will monitor and manage our business
accordingly. Our strong financial condition and cash flow enable us
to continue making long-term investments in our key growth
strategies including new product development, expanding
distribution, entering new markets and pursuing strategic
acquisitions.� 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 undertakes no obligation to update these statements in
light of new information or future events. 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 Item 1A
of, and Exhibit 99 to, the Company�s Annual Report on Form 10-K for
fiscal year 2007 (and most recent Form 10-Q, if applicable) 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. Conference Call A conference call and slide
presentation for analysts and institutional investors will be held
Thursday, October 23, 2008, at 11:00 a.m. ET to discuss Graco�s
third quarter results. Graco management will host the call. 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 2:00 p.m. ET on October 23,
2008, by dialing 800.405.2236, Conference ID # 11120683, if calling
within the U.S. or Canada. The dial-in number for international
participants is 303.590.3000, with the same Conference ID #. The
replay by telephone will be available through October 26, 2008.
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. GRACO INC. AND SUBSIDIARIES
� � � � � Consolidated Statement of Earnings � Thirteen Weeks Ended
Thirty-nine Weeks Ended Sep 26, Sep 28, Sep 26, Sep 28, (in
thousands, except per share amounts) 2008 2007 2008 2007 � Net
Sales $ 207,231 $ 207,270 $ 650,581 $ 636,149 Cost of products sold
� 97,071 � � 96,624 � � 299,805 � � 298,409 � Gross Profit 110,160
110,646 350,776 337,740 Product development 9,626 7,087 26,605
22,903 Selling, marketing and distribution 32,420 30,382 102,083
91,562 General and administrative � 15,585 � � 14,641 � � 50,142 �
� 44,938 � Operating Earnings 52,529 58,536 171,946 178,337
Interest expense 1,934 1,034 5,443 1,934 Other expense, net � 623 �
� 39 � � 606 � � 25 � Earnings Before Income Taxes 49,972 57,463
165,897 176,378 Income taxes � 17,200 � � 18,200 � � 55,100 � �
59,200 � Net Earnings $ 32,772 � $ 39,263 � $ 110,797 � $ 117,178 �
� Net Earnings per Common Share Basic $ 0.55 $ 0.61 $ 1.83 $ 1.78
Diluted 0.54 $ 0.60 $ 1.81 $ 1.75 Weighted Average Number of Shares
Basic 59,769 64,797 60,521 65,836 Diluted 60,365 65,718 61,168
66,834 � Segment Information � Thirteen Weeks Ended Thirty-nine
Weeks Ended Sep 26, Sep 28, Sep 26, Sep 28, 2008 2007 2008 2007 �
Net Sales Industrial $ 117,685 $ 107,791 $ 365,028 $ 327,137
Contractor 67,751 76,649 215,992 240,631 Lubrication � 21,795 � �
22,830 � � 69,561 � � 68,381 � Consolidated $ 207,231 � $ 207,270 �
$ 650,581 � $ 636,149 � Operating Earnings Industrial $ 35,874 $
37,597 $ 117,847 $ 111,570 Contractor 15,226 21,016 49,663 66,662
Lubrication 3,409 2,584 12,333 7,844 Unallocated corporate � (1,980
) � (2,661 ) � (7,897 ) � (7,739 ) Consolidated $ 52,529 � $ 58,536
� $ 171,946 � $ 178,337 � � � All figures are subject to audit and
adjustment at the end of the fiscal year. � 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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