Strong Sales Growth in All Segments and
Regions
Graco Inc. (NYSE: GGG) today announced results for the
first quarter ended March 30, 2018.
Summary
$ in millions except per share amounts
Three Months Ended
Mar 30,2018
Mar 31,2017
%Change
Net Sales $ 406.3 $ 340.6 19 % Operating Earnings 111.7 87.4 28 %
Net Earnings 85.5 60.7 41 % Diluted Net Earnings per Common Share
$ 0.49 $ 0.35 40 %
Adjusted (non-GAAP): (1) Net Earnings, adjusted $ 84.1 $ 57.0 48 %
Diluted Net Earnings per Common Share, adjusted $ 0.48 $ 0.33 45 %
(1) Excludes impacts of excess tax benefits from
stock option exercises. See Financial Results Adjusted for
Comparability below for a reconciliation of adjusted non-GAAP
financial measures to GAAP.
- Sales increased 19 percent, with
double-digit percentage growth in all segments and regions.
Favorable currency translation contributed 5 percentage points and
acquired operations added 3 percentage points of sales growth.
- Gross margin rates remained strong, up
slightly compared to the first quarter last year.
- Operating expenses increased 13
percent, including 3 percentage points from currency translation
and 2 percentage points from acquired operations. Operating
expenses as a percentage of sales decreased by nearly 2 percentage
points.
- The effective income tax rate decreased
by 5 percentage points, driven by the impacts of U.S. federal
income tax reform, partially offset by the effect of a decrease in
excess tax benefits from option exercises.
"The Company's record performance from 2017 continued into the
first quarter of 2018, achieving the highest sales and operating
earnings for a quarter in Graco history," said Patrick J. McHale,
Graco's President and CEO. "Year-over-year sales growth was strong
in the quarter, as we posted organic, constant currency growth in
every region of the world and double-digit growth in each of our
reportable segments. First quarter profitability remained solid,
aided by increased sales volumes, ongoing factory performance and
good expense leverage. Our employees and channel partners around
the world continue to execute at a high level and I thank them for
their efforts to get this year off to a great start against tough
2017 comparables."
Consolidated Results
Sales for the quarter increased 19 percent, with increases of 11
percent in the Americas, 28 percent in EMEA (15 percent at
consistent translation rates) and 36 percent in Asia Pacific (28
percent at consistent translation rates). Changes in currency
translation rates increased sales by approximately $14 million (5
percentage points) for the quarter. Acquired operations contributed
3 percentage points of sales growth.
Gross profit margin rates improved slightly for the quarter.
Favorable effects from currency translation were mostly offset by
the unfavorable effect of lower gross margins from acquired
operations, including a charge of $1 million related to purchase
accounting inventory valuation.
The Company adopted the new revenue recognition accounting
standard during the first quarter with no significant impact on
operating results. The Company also adopted a new accounting
standard requiring certain components of pension cost to be
reclassified from operating costs and expenses to other
non-operating income and expense. The Company had previously
classified such cost as unallocated corporate expense, so the
reclassification had no impact on segment operating results. Prior
year results were restated to conform to current year
classification under the new standard.
Total operating expenses for the quarter increased $12 million
(13 percent) compared to the first quarter last year. The increase
includes $3 million related to currency translation, $2 million
from acquired operations and $3 million of increases in sales and
earnings-based incentive compensation and market-driven share-based
compensation.
The effective income tax rate was 20 percent for the quarter,
down 5 percentage points from the first quarter last year. Excess
tax benefits related to stock option exercises reduced the
effective tax rate by 1 percentage point in the first quarter of
2018 and 4 percentage points in the first quarter last year. U.S.
federal income tax reform legislation passed at the end of 2017
decreased the effective tax rate by 8 percentage points compared to
last year.
Segment Results
Management assesses performance of segments by reference to
operating earnings excluding unallocated corporate expenses and
asset impairments. For a reconciliation of segment operating
earnings to consolidated operating earnings, refer to the Segment
Information table included in the financial statement section of
this release. Certain measurements of segment operations are
summarized below:
Three Months Industrial Process
Contractor Net Sales (in millions) $ 195.2 $ 80.0 $ 131.1
Percentage change from last year Sales 25 % 14 % 15 % Operating
earnings 29 % 31 % 21 % Operating earnings as a percentage of sales
2018
35 % 22 % 24 %
2017
34 % 19 % 23 %
Components of net sales change by geographic region for the
Industrial segment were as follows:
Three Months
Volumeand Price
Acquisitions Currency
Total Americas 7 % 0 % 0 % 7 % EMEA 10 % 12 % 15 % 37 % Asia
Pacific 24 % 7 % 9 % 40 % Consolidated 13 % 5 % 7 % 25 %
Industrial segment sales growth included $9 million from
acquired operations and strong finishing systems sales. Unfavorable
effects of purchase accounting and lower operating margins in
acquired operations partially offset the operating margin rate
increase from higher sales volume and favorable expense
leverage.
Components of net sales change by geographic region for the
Process segment were as follows:
Three Months
Volumeand Price
Acquisitions Currency
Total Americas 13 % 2 % 0 % 15 % EMEA (8 )% 1 % 8 % 1 % Asia
Pacific 25 % 1 % 6 % 32 % Consolidated 10 % 1 % 3 % 14 %
The Process segment had sales growth in all product
applications. Sales growth was particularly strong in the segment's
Lubrication division. Operating margin rates for this segment
increased 3 percentage points driven by higher sales and favorable
expense leverage.
Components of net sales change by geographic region for the
Contractor segment were as follows:
Three Months
Volumeand Price
Acquisitions Currency
Total Americas 9 % 2 % 0 % 11 % EMEA 15 % 0 % 15 % 30 % Asia
Pacific 11 % 0 % 5 % 16 % Consolidated 11 % 1 % 3 % 15 %
Contractor segment sales increased in all channels. Currency
translation effects drove the segment's 1 percentage point increase
in operating margin rate.
Outlook
"Demand in the first quarter continued to be broad-based across
products and geographies," stated McHale. "We are raising our
full-year 2018 outlook to mid-to-high single-digit organic sales
growth on a constant currency basis worldwide, from a prior outlook
of mid single-digit growth. Industrial segment demand in the first
quarter was consistent with our full-year Company outlook, with
segment sales outgrowing bookings; we expect the Industrial
segment's second quarter growth to moderate and the first half
sales growth to be consistent with the full-year Company outlook.
Regionally, we expect to achieve mid-to-high single-digit growth
for the full-year 2018."
Financial Results Adjusted for Comparability
Excluding the impact of tax benefits related to stock option
exercises presents a more consistent basis for comparison of
financial results. A calculation of the non-GAAP measurements of
adjusted income taxes, effective income tax rates, net earnings and
diluted earnings per share follows (in millions except per share
amounts):
Three Months
Ended
Mar 30,2018 Mar 31,2017 Earnings before income taxes
$ 107.4 $ 81.6 Income taxes, as reported $
21.9 $ 20.8 Excess tax benefit from option exercises 1.4
3.7 Income taxes, adjusted $ 23.3 $
24.5 Effective income tax rate As reported 20.4 %
25.6 % Adjusted 21.7 % 30.0 % Net Earnings, as reported $
85.5 $ 60.7 Excess tax benefit from option exercises (1.4 )
(3.7 ) Net Earnings, adjusted $ 84.1 $ 57.0
Weighted Average Diluted Shares 175.6 173.1 Diluted Earnings
per Share As reported $ 0.49 $ 0.35 Adjusted $ 0.48 $ 0.33
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, Form 10-Qs and Form 8-Ks, and
other disclosures, including our 2017 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; economic
conditions in the United States and other major world economies;
changes in tax rates or the adoption of new tax legislation;
changes in currency translation rates; changes in laws and
regulations; compliance with anti-corruption and trade 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; the
possibility of asset impairments if acquired businesses do not meet
performance expectations; 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 a few large customers of the Contractor
segment; variations in activity in the construction, automotive,
mining and oil and natural gas industries; our ability to attract,
develop and retain qualified personnel; and catastrophic events.
Please refer to Item 1A of our Annual Report on Form 10-K for
fiscal year 2017 (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 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 Thursday,
April 26, 2018, at 11 a.m. ET, 10 a.m. CT, 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 p.m. ET on April 26, 2018,
by dialing 888-203-1112, Conference ID #3053454, 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 April 30, 2018.
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
STATEMENTS OF EARNINGS (Unaudited)
(In thousands except per share
amounts)
Three Months
Ended
Mar 30,2018 Mar 31,2017 Net Sales $ 406,348 $ 340,590
Cost of products sold 183,927 154,745 Gross Profit
222,421 185,845 Product development 15,289 14,259 Selling,
marketing and distribution 62,522 54,389 General and administrative
32,914 29,762 Operating Earnings 111,696 87,435
Interest expense 3,233 4,055 Other expense, net 1,035
1,805 Earnings Before Income Taxes 107,428 81,575 Income taxes
21,918 20,843 Net Earnings $ 85,510 $ 60,732 Net
Earnings (Loss) per Common Share Basic $ 0.51 $ 0.36 Diluted $ 0.49
$ 0.35 Weighted Average Number of Shares Basic 169,073 167,304
Diluted 175,649 173,137
SEGMENT INFORMATION
(Unaudited)
(In thousands)
Three Months
Ended
Mar 30,2018 Mar 31,2017 Net Sales Industrial $
195,196 $ 156,390 Process 80,035 70,029 Contractor 131,117
114,171 Total $ 406,348 $ 340,590
Operating Earnings Industrial $ 69,125 $ 53,735 Process
17,702 13,463 Contractor 31,411 26,019 Unallocated corporate
(expense) (6,542 ) (5,782 ) Total $ 111,696 $
87,435
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180425006561/en/
Graco Inc.Financial Contact:Christian Rothe,
612-623-6205orMedia Contact:Charlotte Boyd,
612-623-6153Charlotte_M_Boyd@graco.com
Graco (NYSE:GGG)
Historical Stock Chart
From Jun 2024 to Jul 2024
Graco (NYSE:GGG)
Historical Stock Chart
From Jul 2023 to Jul 2024