Fourth Quarter Sales Growth in All
Regions
Graco Inc. (NYSE: GGG) today announced results for the
fourth quarter ended December 25, 2020.
Summary
$ in millions except per share amounts
Three Months Ended
Twelve Months Ended
Dec 25, 2020
Dec 27, 2019
% Change
Dec 25, 2020
Dec 27, 2019
% Change
Net Sales
$
470.3
$
412.3
14
%
$
1,650.1
$
1,646.0
0
%
Operating Earnings
132.1
104.2
27
%
391.7
424.5
(8
)%
Net Earnings
114.7
84.8
35
%
330.5
343.9
(4
)%
Diluted Net Earnings per Common Share
$
0.66
$
0.49
35
%
$
1.92
$
2.00
(4
)%
Adjusted (non-GAAP): (1)
Net Earnings, adjusted
$
106.0
$
82.0
29
%
$
335.2
$
325.4
3
%
Diluted Net Earnings per Common Share,
adjusted
$
0.61
$
0.48
27
%
$
1.95
$
1.90
3
%
(1)
Excludes impacts of impairment, 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.
- Sales increased by 14 percent in the quarter, led by
double-digit sales growth in the Contractor segment and Asia
Pacific region.
- Gross profit margin rate for the quarter increased due to
strong realized pricing, improved sales volume in the Industrial
segment and favorable effects of changes in currency translation
rates. Unfavorable product and channel mix in the Contractor
segment softened the increase in the gross profit margin rate.
- Operating expense leverage for the quarter remained
strong.
- The effective income tax rate for the quarter decreased 5
percentage points primarily due to increases in excess tax benefits
related to stock option exercises.
“Sales in the fourth quarter grew double digits on improving
Industrial demand and continued strength in the Contractor
segment,” said Patrick J. McHale, Graco’s President and CEO. “While
several end markets remain soft, we saw improvements in our spray
foam, electronics, battery and systems end markets during the
quarter. Improvements in these markets coupled with continued
robust sales in our professional paint and home center channels
resulted in record quarterly sales. Thanks to the hard work of our
employees, suppliers and distributors during a challenging 2020, we
were able to stick to our playbook and fully fund our growth
strategies.”
Consolidated Results
Sales for the quarter increased 14 percent from the comparable
period last year (12 percent at consistent translation rates).
Sales increased 15 percent in the Americas, 7 percent in EMEA (1
percent at consistent translation rates) and 22 percent in Asia
Pacific (17 percent at consistent translation rates). Sales for the
year were comparable to last year. Sales increased 4 percent in the
Americas and 1 percent in Asia Pacific and decreased 9 percent in
EMEA (10 percent at consistent translation rates). Changes in
currency translation rates increased worldwide sales by $9 million
for the quarter (2 percentage points) and did not have a
significant impact on full-year comparisons. Sales from acquired
operations did not have a meaningful impact for the fourth quarter
and increased worldwide sales by $18 million (1 percentage point)
for the year.
The fourth quarter gross profit margin rate increased from the
comparable period last year as strong realized pricing, improved
Industrial segment sales volume and favorable effects of changes in
currency translation rates offset the impacts of unfavorable
product and channel mix within the Contractor segment. For the
year, the gross profit margin rate declined slightly as price
realization was not enough to offset the impacts of unfavorable
product and channel mix (lower high-margin Industrial segment sales
combined with growth in lower-margin Contractor segment sales).
Total operating expenses for the quarter increased $7 million (7
percentage points) mostly due to increases in sales and
earnings-based expenses and product development spending. Operating
expenses for the year included $35 million of non-cash impairment
charges related to the third quarter sale of the Company's
U.K.-based valve business (Alco). The impact of the impairment on
net earnings for the year was $34 million or $0.20 per diluted
share. Total operating expenses before impairment charges for the
year decreased $7 million (2 percentage points) as reductions in
selling expenses offset increases in product development
spending.
Other non-operating expenses decreased $1 million for the
quarter mostly due to market valuation fluctuations on investments
held to fund certain retirement benefits liabilities. For the year,
other non-operating expenses were comparable to last year.
The effective income tax rate for the fourth quarter was 11
percent, down 5 percentage points from the comparable period last
year, primarily due to increases in excess tax benefits related to
stock option exercises. The effective income tax rate for the year
was 12 percent, down 3 percentage points compared to last year. The
decrease was due primarily to additional foreign tax benefits and
excess tax benefits related to stock option exercises partially
offset by non-deductible impairment charges.
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)
$
212.9
$
83.5
$
173.9
$
677.7
$
326.1
$
646.3
Percentage change from last year
Sales
9
%
(6
)%
35
%
(9
)%
(5
)%
17
%
Operating earnings
30
%
(6
)%
44
%
(8
)%
(16
)%
28
%
Operating earnings as a percentage of
sales
2020
37
%
22
%
23
%
33
%
20
%
25
%
2019
31
%
22
%
22
%
33
%
22
%
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
1%
0%
(1)%
0%
(9)%
0%
0%
(9)%
EMEA
2%
0%
6%
8%
(15)%
0%
1%
(14)%
Asia Pacific
23%
0%
6%
29%
(4)%
0%
0%
(4)%
Consolidated
6%
0%
3%
9%
(10)%
0%
1%
(9)%
Recovery in Asia Pacific contributed to Industrial segment sales
growth in the fourth quarter. Sales declined for the year as most
geographies were impacted by government actions that reduced
economic activity. Improved sales volume, strong price realization
and lower product costs drove the fourth quarter operating margin
rate 6 percentage points higher than last year. Operating margin
rate for the year was comparable to last year as price realization
and lower product costs offset decreases in sales volume.
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
(6)%
3%
0%
(3)%
(10)%
3%
0%
(7)%
EMEA
(24)%
1%
2%
(21)%
(19)%
5%
0%
(14)%
Asia Pacific
(8)%
3%
3%
(2)%
(2)%
11%
0%
9%
Consolidated
(10)%
3%
1%
(6)%
(10)%
5%
0%
(5)%
Process segment sales decreased for the quarter and year,
although the rate of decline slowed in the fourth quarter.
Operating earnings as a percentage of sales for the fourth quarter
were similar to the comparable period last year as the effects of
favorable changes in currency translation rates and the impact of
divested operations offset lower sales volume. Operating earnings
as a percentage of sales declined 2 percentage points for the year
driven by lower volume and unfavorable product and channel mix,
partially offset by the impact of divested operations.
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
39%
0%
0%
39%
20%
0%
0%
20%
EMEA
13%
0%
7%
20%
5%
0%
1%
6%
Asia Pacific
40%
0%
5%
45%
14%
0%
(1)%
13%
Consolidated
33%
0%
2%
35%
17%
0%
0%
17%
Contractor segment sales increased in all geographies for the
quarter and year. Continued strength in construction and home
improvement markets drove the increase. Operating margin rate for
the quarter improved slightly from the comparable period last year
as increased sales volume was mostly offset by unfavorable product
and channel mix and higher factory spending. Increased sales volume
and expense leverage contributed to the increase in the operating
margin rate for the year.
Outlook
“Heading into 2021, we expect challenging end market conditions
to remain in place for at least the first half in many of our end
markets as lockdowns continue,” 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.”
Financial Results Adjusted for Comparability
Excluding the impacts of impairment charges, 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 operating earnings, earnings before income taxes, 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 25, 2020
Dec 27, 2019
Dec 25, 2020
Dec 27, 2019
Operating earnings, as reported
$
132.1
$
104.2
$
391.7
$
424.5
Impairment
—
—
35.2
—
Operating earnings, adjusted
$
132.1
$
104.2
$
426.9
$
424.5
Earnings before income taxes, as
reported
$
129.5
$
100.5
$
374.7
$
405.9
Impairment
—
—
35.2
—
Earnings before income taxes, adjusted
$
129.5
$
100.5
$
409.9
$
405.9
Income taxes, as reported
$
14.8
$
15.7
$
44.2
$
62.0
Impairment tax benefit
—
—
1.2
—
Excess tax benefit from option
exercises
8.7
2.3
21.3
10.4
Other non-recurring tax benefit
—
0.5
8.0
8.1
Income taxes, adjusted
$
23.5
$
18.5
$
74.7
$
80.5
Effective income tax rate
As reported
11.4
%
15.6
%
11.8
%
15.3
%
Adjusted
18.1
%
18.5
%
18.2
%
19.8
%
Net Earnings, as reported
$
114.7
$
84.8
$
330.5
$
343.9
Impairment, net
—
—
34.0
—
Excess tax benefit from option
exercises
(8.7
)
(2.3
)
(21.3
)
(10.4
)
Other non-recurring tax benefit
—
(0.5
)
(8.0
)
(8.1
)
Net Earnings, adjusted
$
106.0
$
82.0
$
335.2
$
325.4
Weighted Average Diluted Shares
173.2
171.8
172.0
171.6
Diluted Earnings per Share
As reported
$
0.66
$
0.49
$
1.92
$
2.00
Adjusted
$
0.61
$
0.48
$
1.95
$
1.90
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: the impact of the COVID-19
pandemic on our business; economic conditions in the United States
and other major world economies; our Company’s growth strategies,
which include making acquisitions, investing in new products,
expanding geographically and targeting new industries; changes in
currency translation rates; 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 2019
(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,
January 26, 2021, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s
fourth quarter results.
A real-time listen-only webcast of the conference call will be
broadcast by Nasdaq. Individuals can access the call and view the
slides on 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, January
26, 2021, by dialing 855-859-2056, Conference ID # 5162659, if
calling within the U.S. or Canada. The dial-in number for
international participants is 404-537-3406, with the same
Conference ID #. The replay by telephone will be available through
1 p.m. ET on Tuesday, February 2, 2021.
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 25, 2020
Dec 27, 2019
Dec 25, 2020
Dec 27, 2019
Net Sales
$
470,340
$
412,292
$
1,650,115
$
1,646,045
Cost of products sold
225,516
202,911
795,178
786,289
Gross Profit
244,824
209,381
854,937
859,756
Product development
19,450
16,941
72,194
67,557
Selling, marketing and distribution
60,043
57,529
220,271
234,325
General and administrative
33,203
30,742
135,525
133,418
Impairment
—
—
35,229
—
Operating Earnings
132,128
104,169
391,718
424,456
Interest expense
2,572
2,526
11,280
13,110
Other expense (income), net
49
1,109
5,787
5,469
Earnings Before Income Taxes
129,507
100,534
374,651
405,877
Income taxes
14,816
15,699
44,195
62,024
Net Earnings
$
114,691
$
84,835
$
330,456
$
343,853
Net Earnings per Common Share
Basic
$
0.68
$
0.51
$
1.97
$
2.06
Diluted
$
0.66
$
0.49
$
1.92
$
2.00
Weighted Average Number of Shares
Basic
168,104
166,911
167,462
166,515
Diluted
173,187
171,814
172,008
171,624
SEGMENT INFORMATION
(Unaudited)
(In thousands)
Three Months Ended
Twelve Months Ended
Dec 25, 2020
Dec 27, 2019
Dec 25, 2020
Dec 27, 2019
Net Sales
Industrial
$
212,904
$
194,773
$
677,680
$
747,396
Process
83,495
88,882
326,105
344,930
Contractor
173,941
128,637
646,330
553,719
Total
$
470,340
$
412,292
$
1,650,115
$
1,646,045
Operating Earnings
Industrial
$
78,565
$
60,562
$
226,575
$
247,216
Process
18,528
19,781
64,498
76,367
Contractor
39,969
27,684
164,549
128,282
Unallocated corporate (expense)
(4,934
)
(3,858
)
(28,675
)
(27,409
)
Impairment
—
—
(35,229
)
—
Total
$
132,128
$
104,169
$
391,718
$
424,456
GRACO INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
Dec 25, 2020
Dec 27, 2019
ASSETS
Current Assets
Cash and cash equivalents
$
378,909
$
220,973
Accounts receivable, less allowances of
$4,400 and $5,300
314,946
267,345
Inventories
285,704
273,233
Other current assets
44,242
29,917
Total current assets
1,023,801
791,468
Property, Plant and Equipment, net
350,750
325,546
Goodwill
347,603
307,663
Other Intangible Assets, net
160,669
162,623
Operating Lease Assets
37,807
29,891
Deferred Income Taxes
25,828
39,327
Other Assets
41,670
35,692
Total Assets
$
1,988,128
$
1,692,210
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current Liabilities
Notes payable to banks
$
22,183
$
7,732
Trade accounts payable
58,305
54,117
Salaries and incentives
52,005
51,301
Dividends payable
31,636
29,235
Other current liabilities
157,260
142,937
Total current liabilities
321,389
285,322
Long-term Debt
150,000
164,298
Retirement Benefits and Deferred
Compensation
184,747
182,707
Operating Lease Liabilities
29,224
24,176
Deferred Income Taxes
10,264
10,776
Other Non-current Liabilities
8,600
—
Shareholders’ Equity
Common stock
168,568
167,287
Additional paid-in-capital
671,206
578,440
Retained earnings
568,295
448,991
Accumulated other comprehensive income
(loss)
(124,165
)
(169,787
)
Total shareholders’ equity
1,283,904
1,024,931
Total Liabilities and Shareholders’
Equity
$
1,988,128
$
1,692,210
GRACO INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS (Unaudited)
(In thousands)
Year Ended
Dec 25, 2020
Dec 27, 2019
Cash Flows From Operating
Activities
Net Earnings
$
330,456
$
343,853
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and amortization
55,329
48,911
Deferred income taxes
10,747
(6,411
)
Share-based compensation
25,153
26,669
Impairment
35,229
—
Change in
Accounts receivable
(43,122
)
8,934
Inventories
(13,086
)
12,435
Trade accounts payable
6,820
(539
)
Salaries and incentives
(2,622
)
(14,069
)
Retirement benefits and deferred
compensation
(6,703
)
13,264
Other accrued liabilities
(3,772
)
(11,510
)
Other
(394
)
(2,803
)
Net cash provided by operating
activities
394,035
418,734
Cash Flows From Investing
Activities
Property, plant and equipment
additions
(71,338
)
(127,953
)
Acquisition of businesses, net of cash
acquired
(27,557
)
(26,577
)
Other
(143
)
(939
)
Net cash provided by (used in) investing
activities
(99,038
)
(155,469
)
Cash Flows From Financing
Activities
Borrowings (payments) on short-term lines
of credit, net
(1,986
)
(3,341
)
Borrowings on long-term lines of
credit
250,000
105,423
Payments on long-term debt and lines of
credit
(250,000
)
(207,191
)
Common stock issued
83,438
48,250
Common stock repurchased
(102,143
)
(9,482
)
Taxes paid related to net share settlement
of equity awards
(1,797
)
(1,268
)
Cash dividends paid
(116,983
)
(106,443
)
Net cash provided by (used in) financing
activities
(139,471
)
(174,052
)
Effect of exchange rate changes on
cash
2,410
(358
)
Net increase (decrease) in cash and cash
equivalents
157,936
88,855
Cash and Cash Equivalents
Beginning of year
220,973
132,118
End of year
$
378,909
$
220,973
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210125005869/en/
Financial Contact: Mark Sheahan, 612-623-6656 Media Contact:
Charlotte Boyd, 612-623-6153 Charlotte_M_Boyd@graco.com
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