Sales Growth in All Segments and
Regions
Graco Inc. (NYSE: GGG) today announced results for the
first quarter ended March 26, 2021.
Summary
$ in millions except per share amounts
Three Months Ended
Mar 26, 2021
Mar 27, 2020
% Change
Net Sales
$
454.1
$
373.6
22
%
Operating Earnings
128.3
89.8
43
%
Net Earnings
105.7
72.8
45
%
Diluted Net Earnings per Common Share
$
0.61
$
0.42
45
%
Adjusted (non-GAAP): (1)
Net Earnings, adjusted
$
101.6
$
65.0
56
%
Diluted Net Earnings per Common Share,
adjusted
$
0.58
$
0.38
53
%
(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.
- Net sales increased by 22 percent, with double-digit percentage
growth in all regions and in the Industrial and Contractor
segments. Favorable currency translation contributed 4 percentage
points of sales growth.
- Gross profit margin rate was more than 1 percentage point
higher than the first quarter last year. Changes in currency
translation rates accounted for over half of the increase.
- Operating expense leverage for the quarter remained strong.
Total operating expenses increased 9 percent primarily due to
increases in sales and earnings-based expenses.
- The effective income tax rate for the quarter increased 5
percentage points primarily due to a decrease in excess tax
benefits related to stock option exercises.
"I am pleased with Graco's performance in the first quarter,
where we achieved organic, constant currency growth in every region
and reportable segment," said Patrick J. McHale, Graco's President
and CEO. "We are continuing to see strong performance from our
Contractor segment and improving demand in both our Industrial and
Process groups. Our manufacturing and purchasing teams performed
well to meet the increase in demand in spite of external supply
chain challenges."
Consolidated Results
Net sales for the quarter increased 22 percent from the
comparable period last year (18 percent at consistent translation
rates). Sales increased 18 percent in the Americas, 25 percent in
EMEA (17 percent at consistent translation rates) and 30 percent in
Asia Pacific (22 percent at consistent translation rates). Changes
in currency translation rates increased worldwide sales by $11
million for the quarter (4 percentage points).
Gross profit margin rate for the quarter increased by 1
percentage point from the comparable period last year. Favorable
changes in currency translation rates, realized pricing and higher
production volume were partially offset by the unfavorable effects
of material costs and product and channel mix.
Total operating expenses for the quarter increased $10 million
(9 percentage points) mostly due to increases in sales and
earnings-based expenses and product development spending.
Other non-operating expenses decreased $5 million for the
quarter mostly due to favorable market valuation changes on
investments held to fund certain retirement benefits
liabilities.
The effective income tax rate for the first quarter was 16
percent, up 5 percentage points from the comparable period last
year, primarily due to a decrease in excess tax benefits related to
stock option exercises.
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
Industrial
Process
Contractor
Net Sales (in millions)
$
184.7
$
91.4
$
178.0
Percentage change from last year
Sales
16
%
6
%
38
%
Operating earnings
30
%
20
%
68
%
Operating earnings as a percentage of
sales
2021
35
%
24
%
27
%
2020
32
%
21
%
22
%
Components of net sales change by geographic region for the
Industrial segment were as follows:
Three Months
Volume and Price
Acquisitions and Divestitures
Currency
Total
Americas
8%
0%
0%
8%
EMEA
14%
0%
9%
23%
Asia Pacific
19%
0%
7%
26%
Consolidated
12%
0%
4%
16%
Increased activity in worldwide manufacturing facilities
contributed to Industrial segment sales growth in the first
quarter. Changes in currency translation rates, realized pricing,
higher production volume and expense leverage drove the first
quarter operating margin rate 3 percentage points higher than last
year.
Components of net sales change by geographic region for the
Process segment were as follows:
Three Months
Volume and Price
Acquisitions and Divestitures
Currency
Total
Americas
2%
1%
0%
3%
EMEA
(3)%
(7)%
4%
(6)%
Asia Pacific
38%
(15)%
7%
30%
Consolidated
7%
(3)%
2%
6%
The Process segment had organic sales growth in most
applications for the quarter. Favorable changes in currency
translation rates and the impact of divested operations combined to
increase the first quarter operating margin rate.
Components of net sales change by geographic region for the
Contractor segment were as follows:
Three Months
Volume and Price
Acquisitions and Divestitures
Currency
Total
Americas
34%
0%
0%
34%
EMEA
38%
0%
12%
50%
Asia Pacific
36%
0%
10%
46%
Consolidated
35%
0%
3%
38%
Contractor segment sales increased by double-digit percentages
in all regions. Operating margin rates for this segment increased 5
percentage points driven by higher sales and favorable expense
leverage, partially offset by unfavorable product and channel
mix.
Outlook
"Improvement in our end markets and our incoming order rates
bode well for continued success in the second quarter, ” said
McHale. "However, we are cautious on the longer term outlook as
uncertainty remains in the overall demand environment. We will
continue to execute on our core growth strategies."
Financial Results Adjusted for Comparability
Excluding the impact of excess 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 26, 2021
Mar 27, 2020
Earnings before income taxes
$
125.7
$
82.1
Income taxes, as reported
$
20.0
$
9.3
Excess tax benefit from option
exercises
4.1
7.8
Income taxes, adjusted
$
24.1
$
17.1
Effective income tax rate
As reported
15.9
%
11.3
%
Adjusted
19.2
%
20.8
%
Net Earnings, as reported
$
105.7
$
72.8
Excess tax benefit from option
exercises
(4.1)
(7.8)
Net Earnings, adjusted
$
101.6
$
65.0
Weighted Average Diluted Shares
173.8
172.6
Diluted Earnings per Share
As reported
$
0.61
$
0.42
Adjusted
$
0.58
$
0.38
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, variations in activity in the construction, automotive,
mining and oil and natural gas industries, and the impact of
declines in interest rates, asset values and investment returns on
pension costs and required pension contributions. Please refer to
Item 1A of our Annual Report on Form 10-K for fiscal year 2020 (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 22, 2021, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s first
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 Thursday, April
22, 2021, by dialing 855-859-2056, Conference ID # 6165727, 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
2 p.m. ET on Thursday, April 29, 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
Mar 26, 2021
Mar 27, 2020
Net Sales
$
454,129
$
373,567
Cost of products sold
206,795
174,936
Gross Profit
247,334
198,631
Product development
19,571
17,081
Selling, marketing and distribution
62,228
57,388
General and administrative
37,249
34,350
Operating Earnings
128,286
89,812
Interest expense
2,428
2,486
Other expense, net
121
5,223
Earnings Before Income Taxes
125,737
82,103
Income taxes
20,050
9,285
Net Earnings
$
105,687
$
72,818
Net Earnings per Common Share
Basic
$
0.63
$
0.43
Diluted
$
0.61
$
0.42
Weighted Average Number of Shares
Basic
168,948
167,977
Diluted
173,848
172,642
SEGMENT INFORMATION
(Unaudited)
(In thousands)
Three Months Ended
Mar 26, 2021
Mar 27, 2020
Net Sales
Industrial
$
184,732
$
158,684
Process
91,373
86,078
Contractor
178,024
128,805
Total
$
454,129
$
373,567
Operating Earnings
Industrial
$
65,243
$
50,233
Process
21,733
18,111
Contractor
48,166
28,630
Unallocated corporate (expense)
(6,856
)
(7,162
)
Total
$
128,286
$
89,812
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210421005987/en/
Financial Contact: Mark Sheahan, 612-623-6656 Media Contact:
Charlotte Boyd, 612-623-6153 Charlotte_M_Boyd@graco.com
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