Graco Inc. (NYSE: GGG) today
announced results for the quarter ended March 27, 2009.
Summary
� �
First Quarter Ended March 27, � �
March
28, � �
% $ in millions except per share amounts
2009 2008 Change � Net Sales $ � 137.9 $ �
204.1 (32)% Net Earnings 2.8 35.6 (92)% Diluted Net Earnings per
Common Share $ 0.05 $ 0.57 (91)% �
- Sales and orders decreased in
all segments and regions.
- Low volume drove a decrease in
gross profit margin rate.
- Costs of $4 million relating to
an additional workforce reduction in March were recorded as part of
continued efforts to align operations with market and economic
conditions, reducing diluted earnings by $0.04 per share.
- Currency translation had an
unfavorable effect on sales ($6 million) and net earnings ($2
million).
- Positive cash flow from
operations was $28 million, down only 13 percent compared to last
year.
- Inventories decreased $6 million
(7 percent) and management continues to focus on working capital
management.
�Although our operating results have been severely affected by
the depth of the recession and its impact on the markets we serve,
our business model, product offering, global distribution channel
and competitive position remain strong� said Patrick J. McHale,
President and Chief Executive Officer. �We took further expense
actions during the quarter, but continue to protect our core
organic growth strategies of targeting adjacent new markets,
developing leading-technology new products, and expanding our
global footprint. We believe these investments will drive excellent
long-term shareholder returns.�
Consolidated Results
Sales decreased 31 percent in the Americas, 40 percent in Europe
(32 percent at consistent exchange rates) and 24 percent in Asia
Pacific. Translation rates had an adverse impact on consolidated
sales, contributing approximately 3 percentage points of the
consolidated 32 percent decrease.
Gross profit margin, expressed as a percentage of sales, was
46.7 percent, down from 54.8 percent last year, due to lower
production volumes (approximately 4 percentage points), unfavorable
currency translation rates (approximately 2 percentage points),
workforce reduction costs (approximately 1.5 percentage points) and
increased pension cost (approximately 1 percentage point).
Total operating expenses were slightly lower than last year.
Product development expense increased by $2 million as continued
investment in new and improved products is a key component of the
Company�s strategy for future growth. Offsetting this increase was
a decrease of $2 million from translation effects. Increases in
pension expense ($3 million) and severance expense related to the
additional workforce reduction in 2009 ($1 million) were offset by
the effects of the work force reduction in the fourth quarter of
2008, lower incentive and bonus accruals and other spending
reductions.
The effective tax rate of 34 percent for the first quarter was
higher than last year�s first quarter rate of 30 percent due to the
settlement 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:
� �
First Quarter Industrial � �
Contractor �
�
Lubrication � Net sales (in millions) $ 75.2 $ 47.4 $ 15.2
Net sales percentage change from
last year
(34)% (28)% (36)%
Operating earnings as a percentage
of net sales
����2009
15 % 3 % (9)%
����2008
33 % 21 % 18 % �
All segments experienced double-digit percentage sales
decreases, in all regions. Operating expenses decreased in all
divisions but not enough to offset the effects of lower sales and
the resulting impact of lower production volume on gross margin
rates. In addition to the impacts of low factory volume, workforce
reduction costs and higher product development spending that were
common to all segments, Lubrication operating earnings were also
affected by the mix of products sold and costs related to
discontinued products. The Contractor segment continued to incur
expenses related to the rollout of entry-level paint sprayers to
additional paint and home center stores in 2009.
Outlook
�We expect that global economic conditions will continue to
present a challenging operating environment in the near-term� said
Patrick J. McHale, President and Chief Executive Officer. �We are
focused on managing expenses, capital expenditures, manufacturing
efficiencies and working capital. Workforce reductions initiated in
2008 and the further reduction announced in March of 2009 are
expected to yield $18 million in annualized savings. We intend to
continue making targeted investments in our strategic organic
growth initiatives and to protect our key human capital to the
extent practical. We will use this difficult period to strengthen
our competitive position, expand our product offering, build our
global channel and enter new market spaces. We also recognize that
the timing and shape of a recovery is highly uncertain. We will
remain agile and have contingency plans in place to appropriately
respond to conditions as they unfold.�
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 2008 (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
Graco management will hold a conference call, including slides
via webcast, with analysts and institutional investors on Thursday,
April 23, 2009, at 11:00 a.m. ET to discuss Graco�s first 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 2:00 p.m. ET on April 23,
2009, by dialing 800.405.2236, Conference ID #11130290, 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 April 27, 2009.
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 Statements
of Earnings (Unaudited) � First Quarter Ended March 27, March
28, (in thousands, except per share amounts) 2009 2008 �
Net
Sales $ 137,880 $ 204,120 Cost of products sold � 73,552 � �
92,267 �
Gross Profit 64,328 111,853 Product development
10,051 7,940 Selling, marketing and distribution 31,933 33,821
General and administrative � 16,215 � � 17,738 �
Operating
Earnings 6,129 52,354 Interest expense 1,366 1,603 Other
expense (income), net � 595 � � (115 )
Earnings Before Income
Taxes 4,168 50,866 Income taxes � 1,400 � � 15,300 �
Net
Earnings $ 2,768 � $ 35,566 � �
Net Earnings per Common
Share Basic $ 0.05 $ 0.58 Diluted $ 0.05 $ 0.57
Weighted
Average Number of Shares Basic 59,638 61,254 Diluted 59,903
61,917 �
Segment Information (Unaudited) � First Quarter
Ended March 27, March 28, 2009 2008 �
Net Sales Industrial $
75,232 $ 114,251 Contractor 47,448 66,180 Lubrication � 15,200 � �
23,689 �
Total $ 137,880 � $ 204,120 �
Operating
Earnings Industrial $ 11,495 $ 37,898 Contractor 1,239 13,696
Lubrication (1,436 ) 4,317 Unallocated corporate � (5,169 ) �
(3,557 )
Total $ 6,129 � $ 52,354 � � 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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