Graco Inc. (NYSE: GGG) today announced results for the
quarter and year ended December 26, 2014.
Summary$ in millions except per share amounts
Quarter Ended Year Ended Dec 26,
Dec 27, % Dec 26, Dec
27, % 2014 2013 Change
2014 2013 Change Net Sales $ 306.0 $ 271.9 13
% $ 1,221.1 $ 1,104.0 11 % Operating Earnings 69.5 63.3 10 % 308.9
279.8 10 % Net Earnings 49.0 44.7 10 % 225.6 210.8 7 %
Diluted Net Earnings per Common Share
$ 0.80 $ 0.71 13 % $ 3.65 $ 3.36 9 %
- Fourth quarter and year-to-date sales
increased in all reportable segments and regions, including
double-digit percentage growth in the Americas.
- Changes in currency translation rates
reduced sales by approximately $8 million for the quarter and $3
million for the year, and decreased net earnings by approximately
$3 million for the quarter and $2 million for the year.
- Gross margin rates remained strong at
54 percent for the quarter and 55 percent for the year, down
slightly compared to comparable periods last year.
- Expenses of acquired operations and
spending on regional and product growth initiatives accounted for
approximately 75 percent of the increase in total operating
expenses for both the quarter and the year-to-date.
- Costs and expenses related to
acquisitions and divestitures were approximately $5 million in the
fourth quarter, including $2 million of purchase accounting
inventory step-up and $3 million of acquisition and divestiture
costs.
- Changes in the effective income tax
rate reflect renewals of the federal R&D credit in the fourth
quarter of 2014 and in the first quarter of 2013.
“An outstanding effort by Graco’s employees and channel partners
around the world resulted in strong financial performance
throughout the year, with the Company posting a new record in
annual sales and the fourteenth consecutive quarter of record
quarterly sales,” said Patrick J. McHale, Graco’s President and
Chief Executive Officer. “In the fourth quarter, the Company
achieved double-digit growth on a constant currency basis in every
reportable segment and region, with the exception of the Asia
Pacific region which grew at a high single digit pace. Also on a
constant currency basis, fourth quarter sales grew double digits
organically, the strongest quarterly organic growth performance of
the year and reflecting solid contributions from nearly every
product category and geography within Graco. Although currencies
were a headwind in the fourth quarter and the Company continued to
invest in regional and product expansion throughout the year, Graco
achieved record earnings for the second consecutive year.”
Consolidated Results
Sales for the quarter increased 13 percent, including increases
of 18 percent in the Americas, 8 percent in EMEA (14 percent at
consistent translation rates) and 5 percent in Asia Pacific (8
percent at consistent translation rates). For the year, sales
increased 11 percent, including increases of 15 percent in the
Americas, 8 percent in EMEA and 3 percent in Asia Pacific. Sales
from acquired operations totaled $15 million for the quarter and
$41 million for the year, contributing 5 percentage points of the
growth for the quarter and 4 percentage points of the growth for
the year.
Gross profit margin, expressed as a percentage of sales, was 54
percent for the quarter and 55 percent for the year, slightly lower
than the comparable periods of last year due to the effects of
purchase accounting ($2 million for the quarter and $2½ million for
the year) and lower margins from acquired operations.
Operating expenses for the quarter increased $11 million,
including $7 million from acquired operations. For the year,
operating expenses increased $30 million, including $15 million
from acquired operations. Spending related to regional and product
expansion totaled $2 million for the quarter and $8 million for the
year.
Other expense (income) included dividends received from the
Liquid Finishing businesses that are held separate from the
Company’s other businesses. These dividends totaled $4 million for
the quarter and $28 million for the year, consistent with the
comparable periods last year.
The effective income tax rate for the quarter was 27 percent,
down from 28½ percent last year. The decrease reflected the
full-year 2014 effect of the federal R&D credit that was
reinstated in the fourth quarter, partially offset by the effect of
a reduction in foreign earnings taxed at lower rates. The effective
rate for the year was 28½ percent, up from 27 percent last year.
Last year’s effective rate was lower primarily because it included
two years of federal R&D credit as the credit was reinstated in
the first quarter of 2013 retroactive to the beginning of 2012.
Segment Results
Certain measures of performance by segment are summarized
below:
Quarter Year Industrial
Contractor Lubrication Industrial
Contractor Lubrication Net sales
(in millions) $ 194.9 $ 80.1 $ 30.9 $ 727.4 $ 375.6 $ 118.2
Net sales percentage change from last
year
13 % 9 % 16 % 12 % 10 % 8 %
Operating earnings as a percentage of net
sales
2014
30 % 15 % 21 % 31 % 22 % 22 %
2013
32 % 13 % 20 % 32 % 21 % 21 %
Industrial segment sales increased 13 percent for the quarter
(17 percent at consistent translation rates) and 12 percent for the
year. Sales for the quarter increased 22 percent in the Americas,
11 percent in EMEA (17 percent at consistent translation rates) and
3 percent in Asia Pacific (6 percent at consistent translation
rates). Sales for the year increased 18 percent in the Americas, 9
percent in EMEA and 3 percent in Asia Pacific. Results for 2014
included the operations of EcoQuip, acquired at the end of 2013,
QED Environmental Systems, acquired at the beginning of fiscal
2014, and Alco Valves Group, acquired at the beginning of the
fourth quarter. Acquired operations contributed $15 million (9
percentage points of growth) to sales in this segment for the
quarter and $41 million (6 percentage points of growth) for the
year. Operating margin rates for the quarter and year decreased
compared to last year due to lower margins on acquired operations,
including the impact of acquisition-related inventory valuation
adjustments and spending on regional and product expansion.
Contractor segment sales increased 9 percent for the quarter (11
percent at consistent translation rates) and 10 percent for the
year. Sales for the quarter increased 12 percent in the Americas,
were flat in EMEA (up 6 percent at consistent translation rates),
and increased 11 percent in Asia Pacific (14 percent at consistent
translation rates). For the year, sales increased 12 percent in the
Americas, 5 percent in EMEA and 3 percent in Asia Pacific. Higher
sales and the leverage on expenses drove improvements in operating
earnings as a percentage of sales.
Lubrication segment sales increased 16 percent (18 percent at
consistent translation rates) for the quarter and 8 percent for the
year. Sales for the quarter increased 21 percent in the Americas,
decreased 10 percent in EMEA (5 percent at consistent translation
rates), and increased 9 percent in Asia Pacific (13 percent at
consistent translation rates). For the year, sales increased 13
percent in the Americas and decreased 1 percent in EMEA and 7
percent in Asia Pacific. Higher sales volume and expense leverage
led to higher operating margin rates in the Lubrication
segment.
Acquisitions and Divestitures
In April 2012, the Company completed the purchase of the
finishing businesses of Illinois Tool Works Inc. The acquisition
included Powder Finishing and Liquid Finishing equipment
operations, technologies and brands. Results of the Powder
Finishing business have been included in the Industrial segment
since the date of acquisition. Pursuant to a March 2012 order, the
Liquid Finishing businesses were to be held separate from the rest
of Graco’s businesses while the United States Federal Trade
Commission (“FTC”) considered a settlement with Graco and
determined which portions of the Liquid Finishing business Graco
must divest.
The FTC approved a final decision and order that became
effective on October 9, 2014. Pursuant to the final order, Graco
must sell the Liquid Finishing business assets within 180 days of
the effective date. Graco will continue to hold the Liquid
Finishing businesses separate and maintain them as viable and
competitive until a sale process is complete. The Liquid Finishing
business assets are held as a cost-method investment on Graco’s
balance sheet, and income is recognized based on dividends received
from current earnings. Once the Company completes the sale of its
investment, there will be no further dividends from Liquid
Finishing.
On October 8, 2014, the Company announced it had signed a
definitive agreement to sell the Liquid Finishing business assets
for $590 million cash, subject to regulatory approval and other
customary closing conditions. The sale transaction is expected to
close in the first half of 2015, in compliance with the FTC’s final
decision and order.
On October 1, 2014, the Company acquired the stock of Alco
Valves Group (Alco) for £72 million cash. Alco is a United Kingdom
(U.K.) based manufacturer of high quality, high pressure valves
used in the oil and natural gas industry and in other industrial
processes. Results of Alco operations, including $6 million of
sales, were included in the Company’s Industrial segment starting
from the date of acquisition. In December 2014, the Company
acquired the assets of Geo Blaster Equipment Sales & Service
Inc., a manufacturer of wet abrasive blasting equipment for coating
removal and surface preparation.
In fiscal January 2015, the Company completed the acquisitions
of:
- High Pressure Equipment company (HiP)
for $160 million. HiP designs and manufactures valves, fittings and
other flow control equipment engineered to perform in ultra-high
pressure environments.
- White Knight Fluid Handling, a
manufacturer of high purity, metal free pumps used in the
production process of manufacturing semiconductors, solar panels,
LED flat panel displays and various other electronics.
- Multimaq-Pistolas e Equipamentos Para
Pintura Ltda. (Multimaq), a manufacturer and distributor of
finishing products in the Brazilian market.
Strategic acquisitions support the Company’s growth plans to
expand into new markets and geographies.
Outlook
“Worldwide demand levels were resilient throughout 2014,” stated
McHale. “As we enter 2015, we expect demand levels to continue to
be supportive of growth in every reportable segment and geography,
although currency fluctuations and ongoing geopolitical instability
remain a concern. Our long-term growth initiatives continue to be
our priority, providing a cornerstone for our mid-single digit
organic growth expectations for the first quarter and full year
2015. Acquisitions completed in recent months are expected to add
approximately 5 percentage points to the Company’s sales growth in
2015 and, as disclosed previously, provide earnings accretion of 13
to 15 cents per share for the full year before purchase accounting
and transaction costs. At current exchange rates, unfavorable
movement in foreign currencies would be a headwind of approximately
4 percent on sales and 10 percent on earnings in 2015.”
Cautionary Statement Regarding Forward-Looking
Statements
The Company desires to take advantage of the “safe harbor”
provisions regarding forward-looking statements of the Private
Securities Litigation Reform Act of 1995 and is filing this
Cautionary Statement in order to do so. From time to time various
forms filed by our Company with the Securities and Exchange
Commission, including our Form 10-K, our Form 10-Qs and Form 8-Ks,
and other disclosures, including our 2013 Overview report, press
releases, earnings releases, analyst briefings, conference calls
and other written documents or oral statements released by our
Company, may contain forward-looking statements. Forward-looking
statements generally use words such as “expect,” “foresee,”
“anticipate,” “believe,” “project,” “should,” “estimate,” “will,”
and similar expressions, and reflect our Company’s expectations
concerning the future. All forecasts and projections are
forward-looking statements. Forward-looking statements are based
upon currently available information, but various risks and
uncertainties may cause our Company’s actual results to differ
materially from those expressed in these statements. The Company
undertakes no obligation to update these statements in light of new
information or future events.
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: our Company’s growth strategies,
which include making acquisitions, investing in new products,
expanding geographically and targeting new industries; whether we
are able to effectively complete a divestiture of the acquired
Liquid Finishing businesses, which has not been completed and
remains subject to FTC approval; economic conditions in the United
States and other major world economies; changes in currency
translation rates; changes in laws and regulations; compliance with
anti-corruption laws; new entrants who copy our products or
infringe on our intellectual property; risks incident to conducting
business internationally; the ability to meet our customers’ needs
and changes in product demand; supply interruptions or delays;
security breaches; political instability; results of and costs
associated with, litigation, administrative proceedings and
regulatory reviews incident to our business; the possibility of
decline in purchases from few large customers of the Contractor
segment; variations in activity in the construction and automotive
industries; and natural disasters. Please refer to Item 1A of our
Annual Report on Form 10-K for fiscal year 2013 (and most recent
Form 10-Q) for a more comprehensive discussion of these and other
risk factors. These reports are available on the Company’s website
at www.graco.com/ir and the Securities and Exchange Commission’s
website at www.sec.gov. Shareholders, potential investors and other
readers are urged to consider these factors in evaluating
forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements.
Investors should realize that factors other than those
identified above and in Item 1A 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
Graco management will hold a conference call, including slides
via webcast, with analysts and institutional investors on Tuesday,
January 27, 2015, at 11:00 a.m. ET, to discuss Graco’s fourth
quarter and year-end 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 January 27,
2015, by dialing 888-203-1112, Conference ID #2880728, if calling
within the U.S. or Canada. The dial-in number for international
participants is 719-457-0820, with the same Conference ID #. The
replay by telephone will be available through January 31, 2015.
About Graco
Graco Inc. supplies technology and expertise for the management
of fluids and coatings in both industrial and commercial
applications. It designs, manufactures and markets systems and
equipment to move, measure, control, dispense and spray fluid and
powder 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 or on Twitter @GracoInc.
GRACO INC. AND SUBSIDIARIES Consolidated Statement of
Earnings (Unaudited) Quarter
Ended Year Ended (in thousands, except per share amounts) Dec 26,
Dec 27, Dec 26, Dec 27, 2014 2013 2014 2013
Net Sales $
306,005 $ 271,923 $ 1,221,130 $ 1,104,024 Cost of products sold
141,245 124,724 554,394
496,569
Gross Profit 164,760 147,199 666,736
607,455 Product development 13,897 14,032 54,246 51,428 Selling,
marketing and distribution 51,440 45,646 194,751 177,853 General
and administrative 29,958 24,192
108,814 98,405
Operating Earnings
69,465 63,329 308,925 279,769 Interest expense 4,903 4,310 18,733
18,147 Other expense (income), net (2,479 ) (3,529 )
(24,881 ) (27,200 )
Earnings Before Income
Taxes 67,041 62,548 315,073 288,822 Income taxes 18,000
17,800 89,500 78,000
Net Earnings $ 49,041 $ 44,748 $
225,573 $ 210,822
Net Earnings per Common
Share Basic $ 0.83 $ 0.73 $ 3.75 $ 3.44 Diluted $ 0.80 $ 0.71 $
3.65 $ 3.36
Weighted Average Number of Shares Basic
59,388 61,148 60,148 61,203 Diluted 60,973 62,917 61,745 62,790
Segment Information (Unaudited) Quarter Ended
Year Ended Dec 26, Dec 27, Dec 26, Dec 27, 2014 2013 2014 2013
Net Sales Industrial $ 194,949 $ 171,844 $ 727,389 $ 652,344
Contractor 80,133 73,478 375,574 342,546 Lubrication 30,923
26,601 118,167 109,134
Total $ 306,005 $ 271,923 $ 1,221,130
$ 1,104,024
Operating Earnings
Industrial $ 57,600 $ 55,087 $ 225,337 $ 211,265 Contractor 11,995
9,875 81,892 72,245 Lubrication 6,600 5,227 26,403 22,512
Unallocated Corporate expenses (6,730 ) (6,860 )
(24,707 ) (26,253 )
Total $ 69,465 $
63,329 $ 308,925 $ 279,769
GRACO
INC. AND SUBSIDIARIES Consolidated Balance Sheets
(Unaudited) (In thousands) Dec 26,
Dec 27, 2014 2013
ASSETS Current Assets Cash and cash
equivalents $ 23,656 $ 19,756 Accounts receivable, less allowances
of $8,100 and $6,300 214,944 183,293 Inventories 159,797 133,787
Deferred income taxes 19,969 18,827 Investment in businesses held
separate 421,767 422,297 Other current assets 19,374
14,633 Total current assets 859,507 792,593
Property, Plant and Equipment Cost 433,751 407,887 Accumulated
depreciation (272,521 ) (256,170 ) Property, plant
and equipment, net 161,230 151,717 Goodwill 292,574 189,967
Other Intangible Assets, net 176,278 147,940 Deferred Income Taxes
28,982 20,366 Other Assets 26,207 24,645
Total Assets $ 1,544,778 $ 1,327,228
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities
Notes payable to banks $ 5,016 $ 9,584 Trade accounts payable
39,306 34,282 Salaries and incentives 40,775 38,939 Dividends
payable 17,790 16,881 Other current liabilities 71,593
69,167 Total current liabilities 174,480
168,853 Long-term Debt 615,000 408,370 Retirement Benefits
and Deferred Compensation 136,812 94,705 Deferred Income Taxes
22,454 20,935 Shareholders' Equity Common stock 59,199
61,003 Additional paid-in-capital 384,704 347,058 Retained earnings
252,865 272,653 Accumulated other comprehensive income (loss)
(100,736 ) (46,349 ) Total shareholders' equity
596,032 634,365 Total Liabilities and
Shareholders' Equity $ 1,544,778 $ 1,327,228
GRACO INC. AND SUBSIDIARIES Consolidated Statements of
Cash Flows (Unaudited) (In thousands)
Year Ended Dec 26, Dec 27, 2014 2013
Cash
Flows From Operating Activities Net Earnings $ 225,573 $
210,822
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and amortization 35,515 37,316 Deferred income taxes
329 (1,715 ) Share-based compensation 17,249 16,545 Excess tax
benefit related to share-based payment arrangements (6,634 ) (8,347
) Change in Accounts receivable (26,557 ) (11,880 ) Inventories
(15,079 ) (10,186 ) Trade accounts payable 450 2,436 Salaries and
incentives 1,520 2,022 Retirement benefits and deferred
compensation 5,052 3,629 Other accrued liabilities 6,151 5,556
Other (2,314 ) (3,143 )
Net cash provided by
operating activities 241,255 243,055
Cash Flows From Investing Activities Property, plant
and equipment additions (30,636 ) (23,319 ) Acquisition of
businesses, net of cash acquired (185,462 ) (11,560 ) Investment in
businesses held separate 530 4,516 Proceeds from sale of assets -
1,600 Other (1,163 ) (2,475 )
Net cash used in
investing activities (216,731 ) (31,238 )
Cash
Flows From Financing Activities Borrowings (payments) on
short-term lines of credit, net (4,459 ) 1,280 Borrowings on
long-term line of credit 717,845 419,905 Payments on long-term line
of credit (511,215 ) (568,122 ) Payments of debt issuance costs
(890 ) - Excess tax benefit related to share-based payment
arrangements 6,634 8,347 Common stock issued 30,199 41,664 Common
stock repurchased (195,326 ) (67,827 ) Cash dividends paid
(66,362 ) (61,139 )
Net cash provided by (used in)
financing activities (23,574 ) (225,892 ) Effect
of exchange rate changes on cash 2,950 2,711
Net increase (decrease) in cash and cash equivalents 3,900
(11,364 ) Cash and cash equivalents Beginning of year 19,756
31,120 End of period $ 23,656 $ 19,756
Graco Inc.James A. Graner, 612-623-6635orMedia Contact:Bryce
Hallowell, 612-623-6679
Graco (NYSE:GGG)
Historical Stock Chart
From Jun 2024 to Jul 2024
Graco (NYSE:GGG)
Historical Stock Chart
From Jul 2023 to Jul 2024