Graco Inc. (NYSE: GGG) today announced results for the
quarter and nine months ended September 25, 2009.
Summary
$ in millions except per share amounts
Thirteen Weeks Ended Thirty-nine Weeks
Ended Sep 25, Sep 26, %
Sep 25, Sep 26, % 2009
2008 Change 2009 2008 Change
Net Sales $ 147.3 $ 207.2 (29 )% $ 432.9 $ 650.6 (33 )% Net
Earnings 17.3 32.8 (47 )% 31.7 110.8 (71 )%
Diluted Net Earnings per
Common Share
$ 0.29 $ 0.54 (46 )% $ 0.53 $ 1.81 (71 )%
- Net earnings were $17 million in
the third quarter, on sales of $147 million.
- Sales of $147 million for the
quarter are steady compared to the second quarter and up 7 percent
compared to the first quarter. Compared to the third quarter last
year, sales and orders decreased in all segments and regions.
- Gross margin rate of 53 percent
for the third quarter improved from 49 percent in the second
quarter and 47 percent in the first quarter, and equals last year’s
third quarter rate.
- Currency translation had an
unfavorable effect on year-to-date sales ($14 million) and net
earnings ($5 million).
- Cash flow from year-to-date
operations totaled $110 million.
“While sales remain low compared to last year, we are pleased
with the improvement in profitability over the most recent two
quarters of 2009,” said Patrick J. McHale, President and Chief
Executive Officer. “Cash flow remains strong, and our focus on
managing working capital has reduced inventories by $31 million and
receivables by $21 million since the end of last year. We also
reduced long-term debt by $73 million and made a voluntary $15
million tax-deductible contribution to our defined benefit pension
plan. We intend to continue making targeted investments in our
strategic growth initiatives while managing working capital.”
Consolidated Results
Sales are down 29 percent for the quarter and 33 percent
year-to-date. For the quarter, sales decreased 25 percent in the
Americas, 39 percent in Europe (36 percent at consistent
translation rates) and 25 percent in Asia Pacific. Year-to-date
sales decreased 30 percent in the Americas, 44 percent in Europe
(38 percent at consistent translation rates) and 26 percent in Asia
Pacific.
Gross profit margin, expressed as a percentage of sales, was 53
percent for the quarter and 50 percent year-to-date, compared to 53
percent and 54 percent, respectively, for the comparable periods
last year. For the quarter, the favorable effects of pricing, lower
material costs and cost reduction actions are offset by decreases
from lower production volume and increased pension cost. Decreases
in the year-to-date rate were due to lower production volumes
(approximately 5 percentage points), unfavorable currency
translation rates (approximately 1 percentage point) and increased
pension cost (approximately 1 percentage point). Decreases were
offset somewhat by the effects of favorable material costs and
pricing.
Total operating expenses for the quarter and year-to-date are
down 10 percent and 8 percent, respectively. For both the quarter
and year-to-date, the effects of spending reductions and lower
volume-related expenses are partially offset by higher pension
expenses. Year-to-date, a $4 million decrease from translation
effects is partially offset by $2 million related to workforce
reductions.
Effective income tax rates were 30 percent for the quarter and
31 percent year-to-date, down from last year’s rates of 34 percent
for the quarter and 33 percent year-to-date. A higher-than-expected
benefit upon filing of prior year tax returns contributed to lower
rates in 2009. Effective rates were higher in 2008 because the
R&D tax credit was not renewed until the fourth quarter and no
credit was included in the provisions for the first three quarters
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) $ 78.2 $
55.4 $ 13.7 $ 226.8 $ 163.2 $ 42.9
Net sales percentage
change from last year
(34)% (18)% (37)% (38)% (24)% (38)%
Operating earnings as
a percentage of net sales
2009
26% 20% (1)% 20% 15% (8)%
2008
30% 22% 16% 32% 23% 18%
All segments experienced double-digit percentage decreases in
sales compared to last year for both the quarter and year-to-date.
Improved third quarter operating earnings of all segments reflect
the lower cost structure resulting from workforce and other
spending reduction actions taken in the first quarter of 2009 and
the fourth quarter of 2008. Year-to-date operating earnings of all
segments reflect the impacts of low volume, workforce reduction
costs and higher pension cost. Contractor operating results are
affected by sales, costs and expenses related to the rollout of
entry-level paint sprayers to additional paint and home center
stores earlier in 2009 and in 2008. Mix of product sold and costs
related to discontinued products contributed to lower margin rates
in the Lubrication segment.
Outlook
“While economic conditions continue to create headwinds for our
business, we are encouraged by improved profitability in each of
the last two quarters, resulting from our efforts to improve
production costs and control expenses,” said Patrick J. McHale,
President and Chief Executive Officer. “We expect to continue
investing in growth initiatives including product development,
international expansion and entering new markets. We believe the
Company will emerge from the recession with strong, profitable
growth.”
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,
October 22, 2009, at 11:00 a.m. ET to discuss Graco’s third 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 October 22,
2009, by dialing 800.406.7325, Conference ID #4170310, if calling
within the U.S. or Canada. The dial-in number for international
participants is 303.590.3030, with the same Conference ID #. The
replay by telephone will be available through October 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 Statement of Earnings (Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended Sep 25, Sep 26, Sep
25, Sep 26, (in thousands, except per share amounts) 2009 2008 2009
2008
Net Sales $ 147,308 $ 207,231 $ 432,900 $
650,581 Cost of products sold 69,167 97,071
217,423 299,805
Gross
Profit 78,141 110,160 215,477 350,776 Product development 8,752
9,626 28,584 26,605 Selling, marketing and distribution 26,589
32,420 86,814 102,083 General and administrative 16,613
15,585 49,317 50,142
Operating Earnings 26,187 52,529 50,762 171,946
Interest expense 1,148 1,934 3,735 5,443 Other expense (income),
net 203 623 889
606
Earnings Before Income Taxes 24,836 49,972 46,138
165,897 Income taxes 7,500 17,200
14,400 55,100
Net Earnings $
17,336 $ 32,772 $ 31,738 $ 110,797
Net Earnings per Common Share Basic $ 0.29 $ 0.55 $
0.53 $ 1.83 Diluted 0.29 0.54 $ 0.53 $ 1.81
Weighted Average
Number of Shares Basic 59,940 59,769 59,827 60,521 Diluted
60,314 60,365 60,133 61,168
Segment Information
(Unaudited) Thirteen Weeks Ended Thirty-nine Weeks Ended
Sep 25, Sep 26, Sep 25, Sep 26, 2009 2008 2009 2008
Net
Sales Industrial $ 78,242 $ 117,685 $ 226,808 $ 365,028
Contractor 55,379 67,751 163,213 215,992 Lubrication 13,687
21,795 42,879 69,561
Consolidated $ 147,308 $ 207,231 $
432,900 $ 650,581
Operating Earnings
Industrial $ 20,332 $ 35,874 $ 45,262 $ 117,847 Contractor 11,138
15,226 24,420 49,663 Lubrication (167 ) 3,409 (3,348 ) 12,333
Unallocated corporate (5,116 ) (1,980 )
(15,572 ) (7,897 )
Consolidated $ 26,187 $
52,529 $ 50,762 $ 171,946 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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