Graco Inc. (NYSE: GGG) today announced results for the
quarter and year ended December 27, 2019.
Summary $ in millions except per
share amounts
Three Months Ended
Twelve Months Ended
Dec 27, 2019
Dec 28, 2018
% Change
Dec 27, 2019
Dec 28, 2018
% Change
Net Sales
$
412.3
$
406.4
1
%
$
1,646.0
$
1,653.3
(0
)%
Operating Earnings
104.2
96.6
8
%
424.5
436.4
(3
)%
Net Earnings
84.8
73.7
15
%
343.9
341.1
1
%
Diluted Net Earnings per Common Share
$
0.49
$
0.43
14
%
$
2.00
$
1.97
2
%
Adjusted (non-GAAP): (1)
Net Earnings, adjusted
$
82.0
$
73.5
12
%
$
325.4
$
326.1
(0
)%
Diluted Net Earnings per Common Share,
adjusted
$
0.48
$
0.43
12
%
$
1.90
$
1.88
1
%
(1) Excludes impacts of excess tax benefits from stock option
exercises and certain non-recurring tax provision adjustments. See
Financial Results Adjusted for Comparability below for a
reconciliation of adjusted non-GAAP financial measures to GAAP.
- Decreases in Asia Pacific sales offset growth in the Americas
and EMEA for both the quarter and the year.
- Strong sales growth and favorable operating leverage drove up
fourth quarter profitability in the Contractor segment.
- Gross margin rates for the quarter and year decreased due to
lower factory volume, unfavorable product and channel mix, and
changes in currency translation rates. Strong realized pricing
softened the decline in gross margin rates.
- Total operating expenses decreased 6 percent for the quarter
and 2 percent for the year.
- The effective income tax rate for the quarter decreased due to
an increase in excess tax benefits from stock option exercises. The
effective rate for the year decreased mainly due to a tax rate
change in a foreign jurisdiction.
“Sales in the fourth quarter reflected trends noted in earlier
quarters, with the Asia Pacific region continuing to be
particularly challenging,” said Patrick J. McHale, Graco’s
President and CEO. “While several end markets and segments were
soft in 2019, we were pleased with the performance of our
Contractor business and the EMEA region, as each posted solid
organic growth. Thanks to the hard work, dedication and outstanding
execution of our employees and distributors worldwide, we were able
to stick to our playbook. We fully funded our growth strategies,
made capital investments exceeding $100 million to expand
production and service capabilities, and limited discretionary
spending to protect bottom line results.”
Consolidated Results
Sales for the quarter increased 1 percent from the comparable
period last year (2 percent at consistent translation rates). Sales
increased 4 percent in the Americas and 11 percent in EMEA (14
percent at consistent translation rates), and decreased 17 percent
in Asia Pacific (16 percent at consistent translation rates). Sales
for the year decreased slightly from the comparable period last
year (up 1 percent at consistent translation rates), with increases
of 4 percent in the Americas and 3 percent in EMEA (8 percent at
consistent translation rates), offset by a 17 percent decrease in
Asia Pacific (14 percent at consistent translation rates). Changes
in currency translation rates decreased worldwide sales by
approximately $3 million (1 percentage point) for the quarter and
$29 million (1 percentage point) for the year. Sales from acquired
operations contributed approximately $4 million (1 percentage
point) of growth to the fourth quarter, and did not have a
significant impact on full-year comparisons.
Gross profit margin rates for the quarter and year decreased
from the comparable periods last year driven by lower factory
volume, unfavorable channel and product mix, and changes in
currency translation rates. Price changes implemented early in the
year offset the adverse impact of higher material costs, including
tariffs.
Total operating expenses for the quarter and year decreased $7
million (6 percent) and $11 million (2 percent), respectively,
compared to last year. Reductions in volume and earnings-based
expenses more than offset increases in product development
expenses, which increased 6 percent for the quarter and 7 percent
for the year.
Other expense for the year decreased $6 million from last year,
driven by gains on investments used to fund certain pension
liabilities, and by lower exchange losses on net assets of foreign
operations.
The effective income tax rate was 16 percent for the quarter and
15 percent for the year, both down approximately 2 percentage
points from the comparable periods last year. An increase in excess
tax benefits from stock option exercises drove the decrease for the
quarter. For the year, revaluation of deferred taxes pursuant to a
tax rate change in a foreign jurisdiction and an increase in
non-recurring benefits from other tax planning activities drove the
decrease.
Segment Results
Management assesses performance of segments by reference to
operating earnings excluding unallocated corporate expenses. 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
Twelve Months
Industrial
Process
Contractor
Industrial
Process
Contractor
Net Sales (in millions)
$
194.8
$
88.9
$
128.6
$
747.4
$
344.9
$
553.7
Percentage change from last year
Sales
(2
)%
1
%
8
%
(4
)%
2
%
4
%
Operating earnings
(6
)%
25
%
51
%
(9
)%
11
%
6
%
Operating earnings as a percentage of
sales
2019
31
%
22
%
22
%
33
%
22
%
23
%
2018
32
%
18
%
15
%
35
%
20
%
23
%
Components of net sales change by geographic region for the
Industrial segment were as follows:
Three Months
Twelve Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
3%
0%
0%
3%
3%
0%
0%
3%
EMEA
16%
0%
(3)%
13%
7%
0%
(5)%
2%
Asia Pacific
(26)%
0%
0%
(26)%
(19)%
0%
(2)%
(21)%
Consolidated
(1)%
0%
(1)%
(2)%
(2)%
0%
(2)%
(4)%
Continued softness in Asia Pacific end markets caused steep
declines in fourth quarter Industrial segment sales. Increases in
finishing system sales drove a double-digit percentage increase in
EMEA. For the year, underlying sales growth in the Americas and
EMEA was more than offset by decreases in Asia Pacific. Operating
earnings as a percentage of sales decreased for the quarter and
year as the favorable effects of pricing were more than offset by
the adverse impacts of higher material costs, lower sales and
factory volume, product and channel mix, and currency
translation.
Components of net sales change by geographic region for the
Process segment were as follows:
Three Months
Twelve Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
(4)%
1%
0%
(3)%
3%
0%
0%
3%
EMEA
(4)%
10%
(1)%
5%
3%
5%
(3)%
5%
Asia Pacific
(2)%
12%
(1)%
9%
(5)%
4%
(3)%
(4)%
Consolidated
(4)%
5%
0%
1%
1%
2%
(1)%
2%
Process segment sales for the quarter increased slightly, as
sales from acquired operations more than offset volume declines in
organic businesses. For the year, weakness in Asia Pacific also
adversely affected Process segment sales, nearly offsetting
increases in the Americas and EMEA. Operating margin rates for the
quarter and year improved, driven by lower volume and
earnings-based costs.
Components of net sales change by geographic region for the
Contractor segment were as follows:
Three Months
Twelve Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
10%
0%
0%
10%
5%
0%
0%
5%
EMEA
13%
0%
(3)%
10%
9%
0%
(5)%
4%
Asia Pacific
(4)%
0%
(2)%
(6)%
(6)%
0%
(4)%
(10)%
Consolidated
9%
0%
(1)%
8%
5%
0%
(1)%
4%
Contractor segment sales for the quarter increased by 9 percent
at consistent currency translation rates, driving growth for the
year to 5 percent, with favorable response to new product offerings
and continued strength in construction markets in the Americas and
EMEA. Operating margin rate for the quarter increased by 7
percentage points over the comparable quarter last year, driven by
strong improvements in gross margin rate and expense leverage.
Operating margin rate for the year was consistent with the rate
last year.
Outlook
“Heading into 2020, we expect challenging end market conditions
to remain in place for at least the first half of the year in our
Industrial and Process segments” said McHale. “Our outlook for the
Contractor segment remains positive as favorable conditions
continue, and demand for our products is solid across major end
markets and product categories. As a result, our outlook for 2020
is low single-digit revenue growth on an organic, constant currency
basis.”
Financial Results Adjusted for Comparability
Excluding the impacts of excess tax benefits related to stock
option exercises and certain tax provision adjustments 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
Twelve Months Ended
Dec 27, 2019
Dec 28, 2018
Dec 27, 2019
Dec 28, 2018
Earnings before income taxes
$
100.5
$
90.0
$
405.9
$
410.8
Income taxes, as reported
$
15.7
$
16.3
$
62.0
$
69.7
Excess tax benefit from option
exercises
2.3
0.2
10.4
10.0
Other non-recurring tax benefit
0.5
—
8.1
5.0
Income taxes, adjusted
$
18.5
$
16.5
$
80.5
$
84.7
Effective income tax rate
As reported
15.6
%
18.1
%
15.3
%
17.0
%
Adjusted
18.5
%
18.4
%
19.8
%
20.6
%
Net Earnings, as reported
$
84.8
$
73.7
$
343.9
$
341.1
Excess tax benefit from option
exercises
(2.3
)
(0.2
)
(10.4
)
(10.0
)
Other non-recurring tax benefit
(0.5
)
—
(8.1
)
(5.0
)
Net Earnings, adjusted
$
82.0
$
73.5
$
325.4
$
326.1
Weighted Average Diluted Shares
171.8
170.9
171.6
173.2
Diluted Earnings per Share
As reported
$
0.49
$
0.43
$
2.00
$
1.97
Adjusted
$
0.48
$
0.43
$
1.90
$
1.88
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 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; changes in
currency translation rates; economic conditions in the United
States and other major world economies; the ability to meet our
customers’ needs and changes in product demand; supply
interruptions or delays; security breaches; new entrants who copy
our products or infringe on our intellectual property; risks
incident to conducting business internationally; catastrophic
events; changes in laws and regulations; compliance with
anti-corruption and trade laws; changes in tax rates or the
adoption of new tax legislation; 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; our ability to
attract, develop and retain qualified personnel; the possibility of
decline in purchases from a few large customers of the Contractor
segment; and variations in activity in the construction,
automotive, mining and oil and natural gas industries. Please refer
to Item 1A of our Annual Report on Form 10-K for fiscal year 2018
(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 Tuesday,
Jan. 28, 2020, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s fourth
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 Tuesday, Jan. 28,
2020, by dialing 888-203-1112, Conference ID #8157037, if calling
within the U.S. or Canada. The dial-in number for international
participants is 719-457-0820, with the same Conference ID number.
The replay by telephone will be available through 2 p.m. ET on
Saturday, Feb. 1, 2020.
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.
GRACO INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
EARNINGS (Unaudited)
(In thousands except per share
amounts)
Three Months Ended
Twelve Months Ended
Dec 27, 2019
Dec 28, 2018
Dec 27, 2019
Dec 28, 2018
Net Sales
$
412,292
$
406,438
$
1,646,045
$
1,653,292
Cost of products sold
202,911
197,682
786,289
770,753
Gross Profit
209,381
208,756
859,756
882,539
Product development
16,941
15,989
67,557
63,124
Selling, marketing and distribution
57,529
62,732
234,325
245,473
General and administrative
30,742
33,461
133,418
137,515
Operating Earnings
104,169
96,574
424,456
436,427
Interest expense
2,526
3,678
13,110
14,385
Other expense, net
1,109
2,851
5,469
11,276
Earnings Before Income Taxes
100,534
90,045
405,877
410,766
Income taxes
15,699
16,322
62,024
69,712
Net Earnings
$
84,835
$
73,723
$
343,853
$
341,054
Net Earnings per Common Share
Basic
$
0.51
$
0.44
$
2.06
$
2.04
Diluted
$
0.49
$
0.43
$
2.00
$
1.97
Weighted Average Number of Shares
Basic
166,911
165,875
166,515
167,364
Diluted
171,814
170,899
171,624
173,213
SEGMENT INFORMATION
(Unaudited)
(In thousands)
Three Months Ended
Twelve Months Ended
Dec 27, 2019
Dec 28, 2018
Dec 27, 2019
Dec 28, 2018
Net Sales
Industrial
$
194,773
$
199,519
$
747,396
$
781,029
Process
88,882
88,303
344,930
337,953
Contractor
128,637
118,616
553,719
534,310
Total
$
412,292
$
406,438
$
1,646,045
$
1,653,292
Operating Earnings
Industrial
$
60,562
$
64,580
$
247,216
$
271,307
Process
19,781
15,885
76,367
68,514
Contractor
27,684
18,373
128,282
120,905
Unallocated corporate (expense)
(3,858
)
(2,264
)
(27,409
)
(24,299
)
Total
$
104,169
$
96,574
$
424,456
$
436,427
GRACO INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
Dec 27, 2019
Dec 28, 2018
ASSETS
Current Assets
Cash and cash equivalents
$
220,973
$
132,118
Accounts receivable, less allowances of
$5,300 and $5,300
267,345
274,608
Inventories
273,233
283,982
Other current assets
29,917
32,508
Total current assets
791,468
723,216
Property, Plant and Equipment, net
325,546
229,295
Goodwill
307,663
293,846
Other Intangible Assets, net
162,623
166,310
Operating Lease Assets
29,891
—
Deferred Income Taxes
39,327
32,055
Other Assets
35,692
28,019
Total Assets
$
1,692,210
$
1,472,741
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current Liabilities
Notes payable to banks
$
7,732
$
11,083
Trade accounts payable
54,117
56,902
Salaries and incentives
51,301
62,297
Dividends payable
29,235
26,480
Other current liabilities
142,937
143,041
Total current liabilities
285,322
299,803
Long-term Debt
164,298
266,391
Retirement Benefits and Deferred
Compensation
182,707
133,388
Operating Lease Liabilities
24,176
—
Deferred Income Taxes
10,776
16,586
Other Non-current Liabilities
—
4,700
Shareholders’ Equity
Common stock
167,287
165,171
Additional paid-in-capital
578,440
510,825
Retained earnings
448,991
220,734
Accumulated other comprehensive income
(loss)
(169,787
)
(144,857
)
Total shareholders’ equity
1,024,931
751,873
Total Liabilities and Shareholders’
Equity
$
1,692,210
$
1,472,741
GRACO INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS (Unaudited)
(In thousands)
Year Ended
Dec 27, 2019
Dec 28, 2018
Cash Flows From Operating
Activities
Net Earnings
$
343,853
$
341,054
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and amortization
48,911
47,754
Deferred income taxes
(6,411
)
15,405
Share-based compensation
26,669
25,565
Change in
Accounts receivable
8,934
(12,402
)
Inventories
12,435
(30,719
)
Trade accounts payable
(539
)
(1,976
)
Salaries and incentives
(14,069
)
2,336
Retirement benefits and deferred
compensation
13,264
(27,237
)
Other accrued liabilities
(11,510
)
7,517
Other
(2,803
)
688
Net cash provided by operating
activities
418,734
367,985
Cash Flows From Investing
Activities
Property, plant and equipment
additions
(127,953
)
(53,854
)
Acquisition of businesses, net of cash
acquired
(26,577
)
(10,769
)
Other
(939
)
(1,624
)
Net cash provided by (used in) investing
activities
(155,469
)
(66,247
)
Cash Flows From Financing
Activities
Borrowings (payments) on short-term lines
of credit, net
(3,341
)
4,931
Borrowings on long-term lines of
credit
105,423
620,746
Payments on long-term debt and lines of
credit
(207,191
)
(583,212
)
Common stock issued
48,250
24,634
Common stock repurchased
(9,482
)
(244,814
)
Taxes paid related to net share settlement
of equity awards
(1,268
)
(16,151
)
Cash dividends paid
(106,443
)
(88,845
)
Net cash provided by (used in) financing
activities
(174,052
)
(282,711
)
Effect of exchange rate changes on
cash
(358
)
187
Net increase (decrease) in cash and cash
equivalents
88,855
19,214
Cash and Cash Equivalents
Beginning of year
132,118
112,904
End of year
$
220,973
$
132,118
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200127005677/en/
Financial Contact: Mark Sheahan, 612-623-6656
Media Contact: Charlotte Boyd, 612-623-6153
Charlotte_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