Graco Inc. (NYSE: GGG) today announced results for the
quarter ended March 26, 2010.
Summary
$ in millions except per share
amounts
First Quarter Ended March
26, March 27, %
2010 2009 Change Net Sales $
164.7 $ 137.9 19 % Net Earnings 20.6 2.8 640 % Diluted Net Earnings
per Common Share $ 0.34 $ 0.05 580 %
- Sales and operating earnings
each increased by $27 million.
- Sales increased in all divisions
and regions.
- Asia Pacific contributed more
than half of the sales increase, and Europe increased by 17
percent.
- Gross margin rate of 54 percent
was 7½ percentage points higher than last year’s first quarter
rate.
- Operating earnings as a
percentage of sales increased to 20 percent, up from 4 percent for
the first quarter last year.
“This year’s first quarter results are significantly better than
last year’s low-point, but are still below our pre-recession
results of 2008,” said Patrick J. McHale, President and Chief
Executive Officer. “We’re encouraged by the business tempo in our
international markets, especially in developing countries. While
we’re pleased with the improvement in our Lubrication segment, a
return to historical operating margins will require significant
additional volume as we continue to invest in growth initiatives.
We remain cautious about the short-term base business prospects for
our Contractor segment in North America and Western Europe as the
residential recovery is still weak and commercial construction
markets remain depressed. Nevertheless, we’re optimistic that our
new product introductions in Contractor may provide some upside to
the difficult end-market conditions as the year progresses.”
Consolidated Results
Sales for the first quarter increased 19 percent, with 3
percentage points of the increase from currency translation. Sales
increased 8 percent in the Americas, 17 percent in Europe (11
percent at consistent translation rates) and 65 percent in Asia
Pacific (55 percent at consistent translation rates).
Gross profit margin, expressed as a percentage of sales, was 54
percent, up from 47 percent for the first quarter last year. The
increase included approximately 1½ percentage points from the
favorable effects of currency translation. Costs related to
workforce reductions lowered the 2009 first quarter gross margin
rate, accounting for approximately 2 percentage points of the
increase in 2010. Higher production volume in 2010 contributed
approximately 1½ percentage points to the increase in gross margin
rate. Lower material and pension costs, price increases and product
mix also contributed to the increase in margin rate.
Total operating expenses were down 3 percent. The effects of
cost reduction actions in 2008 and 2009 and lower pension expense
were partially offset by the effects of currency translation and
increases in bad debt expense and incentives.
The effective income tax rate of 34½ percent was 1 percentage
point higher in 2010 compared to 2009. The federal R&D credit
has not been renewed for 2010, so no credit is included in the 2010
rate.
Segment Results
Certain measurements of segment
operations are summarized below:
First Quarter Industrial
Contractor Lubrication
Net sales (in millions) $ 96.8 $ 50.8 $ 17.1
Net sales percentage change from
last year
29 % 7 % 13 %
Operating earnings as a percentage
of net sales
2010
31 % 10 % 10 %
2009
15 % 3 % (9 )%
Sales increased in all segments. Industrial Products increased
29 percent (24 percent at consistent translation rates), Contractor
increased 7 percent (4 percent at consistent translation rates) and
Lubrication increased 13 percent (9 percent at consistent
translation rates). Improved operating earnings of all segments
reflect the effect of higher sales and the lower cost structure
resulting from workforce and other spending reduction actions taken
in the fourth quarter of 2008 and the first quarter of 2009.
Outlook
“We believe that our improved operating results reflect the
strength of our business model and competitive position,” said
Patrick J. McHale, President and Chief Executive Officer. “During
the recession, we remained committed to making significant organic
growth investments in new product development, international sales
people and our global distribution channel. While these investments
weighed on short-term profitability in the face of significant
revenue declines, we are confident that this approach is working
and has positioned us well to deliver solid long-term shareholder
returns.”
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 it is 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 2009 (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 22, 2010, 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 22,
2010, by dialing 800.406.7325, Conference ID #4282472, 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 April 27, 2010.
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 (in thousands, except per share amounts) March 26,
March 27, 2010 2009
Net Sales $ 164,721 $ 137,880 Cost of
products sold 75,426 73,552
Gross
Profit 89,295 64,328 Product development 9,474 10,051 Selling,
marketing and distribution 29,160 31,933 General and administrative
17,955 16,215
Operating Earnings
32,706 6,129 Interest expense 1,080 1,366 Other expense, net
161 595
Earnings Before Income Taxes
31,465 4,168 Income taxes 10,900 1,400
Net Earnings $ 20,565 $ 2,768
Net
Earnings per Common Share Basic $ 0.34 $ 0.05 Diluted $ 0.34 $
0.05
Weighted Average Number of Shares Basic 60,206
59,638 Diluted 60,713 59,903
Segment Information
(Unaudited) Thirteen Weeks Ended March 26, March 27,
2010 2009
Net Sales Industrial $ 96,792 $ 75,232 Contractor
50,797 47,448 Lubrication 17,132 15,200
Total $ 164,721 $ 137,880
Operating
Earnings Industrial $ 30,474 $ 11,495 Contractor 4,883 1,239
Lubrication 1,707 (1,436 ) Unallocated corporate (expense)
(4,358 ) (5,169 )
Total $ 32,706 $ 6,129
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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