Double-Digit Sales Growth in All Segments
and Regions
Graco Inc. (NYSE: GGG) today announced results for the
second quarter ended June 25, 2021.
Summary $ in millions except per share amounts
Three Months Ended
Six Months Ended
Jun 25, 2021
Jun 26, 2020
%
Change
Jun 25, 2021
Jun 26, 2020
%
Change
Net Sales
$
507.2
$
366.9
38
%
$
961.3
$
740.5
30
%
Operating Earnings
133.8
44.8
199
%
262.1
134.6
95
%
Net Earnings
110.1
28.8
282
%
215.8
101.7
112
%
Diluted Net Earnings per Common Share
$
0.63
$
0.17
271
%
$
1.24
$
0.59
110
%
Adjusted (non-GAAP): (1)
Operating Earnings, adjusted
$
133.8
$
79.8
68
%
$
262.1
$
169.6
55
%
Net Earnings, adjusted
$
108.0
$
62.3
73
%
$
209.6
$
127.5
65
%
Diluted Net Earnings per Common Share,
adjusted
$
0.62
$
0.37
68
%
$
1.20
$
0.74
62
%
(1)
Excludes impacts of the prior year
impairment and 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 for the quarter increased by 38 percent, led by 53
percent growth in the Industrial segment. Favorable currency
translation contributed 4 percentage points of sales growth for the
quarter.
- Increased production volume, favorable product and channel mix
and favorable changes in currency translation rates offset higher
product costs and drove the gross profit margin rate for the
quarter 2 percentage points higher than last year.
- Expense leverage contributed 2 percentage points of operating
margin rate growth for the quarter. Total operating expenses
increased 26 percent primarily due to increases in sales and
earnings-based expenses.
- 2020 results included a non-cash impairment charge that reduced
diluted earnings per share for the quarter and year to date by
$0.20.
"Sales in the second quarter grew double-digits in every region
and reportable segment on an organic, constant currency basis,"
said Mark Sheahan, Graco’s President and CEO. "Broad-based growth
in the Industrial and Process segments combined with the continued
strength in the Contractor segment drove record quarterly sales and
operating earnings. Our manufacturing and purchasing teams have
performed well to keep up with robust demand in all segments
despite supply chain and logistical challenges."
Consolidated Results
Net sales for the quarter increased 38 percent from the
comparable period last year (34 percent at consistent translation
rates). Sales increased 33 percent in the Americas (32 percent at
consistent translation rates), 60 percent in EMEA (49 percent at
consistent translation rates) and 34 percent in Asia Pacific (25
percent at consistent translation rates). Year to date sales
increased 30 percent from the comparable period last year (26
percent at consistent translation rates). Sales increased 25
percent in the Americas, 41 percent in EMEA (31 percent at
consistent translation rates) and 32 percent in Asia Pacific (24
percent at consistent translation rates). Changes in currency
translation rates increased worldwide sales by $12 million for the
quarter and $23 million for the year to date.
Gross profit margin rates improved approximately 2 percentage
points for the quarter and year to date. Increased production
volume, favorable product and channel mix and favorable changes in
currency translation rates offset higher product costs.
Total operating expenses increased $27 million (26 percentage
points) for the quarter and $37 million (18 percentage points) for
the year to date mostly due to increases in sales and
earnings-based expenses and product development spending. Changes
in currency translation rates increased operating expenses by $3
million (2 percentage points) for the quarter and $5 million (2
percentage points) for the year to date.
Other non-operating expenses were comparable for the quarter and
decreased $5 million for the year to date mostly due to favorable
market valuation changes on investments held to fund certain
retirement benefits liabilities.
The effective income tax rate for the quarter and year to date
was 16 percent, down 15 percentage points and 2 percentage points
from the comparable periods last year, respectively. The decreases
in effective tax rates were primarily due to non-deductible
impairment charges in the prior year, partially offset by changes
in excess tax benefits for 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
Six Months
Industrial
Process
Contractor
Industrial
Process
Contractor
Net Sales (in millions)
$
204.6
$
97.2
$
205.4
$
389.3
$
188.6
$
383.4
Percentage change from last year
Sales
53
%
25
%
32
%
33
%
15
%
35
%
Operating earnings
87
%
86
%
22
%
54
%
46
%
41
%
Operating earnings as a percentage of
sales
2021
34
%
22
%
24
%
35
%
23
%
26
%
2020
28
%
15
%
26
%
30
%
18
%
24
%
Components of net sales change by geographic region for the
Industrial segment were as follows:
Three Months
Six Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
48%
0%
1%
49%
25%
0%
1%
26%
EMEA
55%
5%
12%
72%
32%
2%
10%
44%
Asia Pacific
35%
0%
8%
43%
27%
0%
8%
35%
Consolidated
46%
1%
6%
53%
28%
0%
5%
33%
Industrial segment sales for the quarter and year to date
increased sharply in all regions as end markets strengthened from
last year. Operating margin rates increased mostly due to higher
production volume and expense leverage.
Components of net sales change by geographic region for the
Process segment were as follows:
Three Months
Six Months
Volume and Price
Acquisitions and Divestitures
Currency
Total
Volume and Price
Acquisitions and Divestitures
Currency
Total
Americas
30%
(1)%
1%
30%
15%
0%
0%
15%
EMEA
22%
(9)%
6%
19%
8%
(8)%
5%
5%
Asia Pacific
30%
(21)%
8%
17%
34%
(18)%
7%
23%
Consolidated
29%
(7)%
3%
25%
17%
(5)%
3%
15%
The Process segment had organic sales growth in all applications
for the quarter and year to date. Higher production volume, the
impact of divested operations and expense leverage combined to
increase the operating margin rate for the quarter and year to
date.
Components of net sales change by geographic region for the
Contractor segment were as follows:
Three Months
Six Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
25%
0%
1%
26%
29%
0%
1%
30%
EMEA
52%
0%
13%
65%
45%
0%
12%
57%
Asia Pacific
17%
0%
12%
29%
25%
0%
12%
37%
Consolidated
29%
0%
3%
32%
32%
0%
3%
35%
Contractor segment sales increased by double-digit percentages
in all regions for the quarter and year to date as construction
markets remain robust. The operating margin rate for the quarter
decreased 2 percentage points as increased sales volume and
favorable changes in currency translation rates were unable to
offset the adverse impacts of higher material costs, increased
factory spending and higher sales and earnings-based expenses.
Increased sales volume and favorable changes in currency
translation rates drove the operating margin rate 1 percentage
point higher for the year to date.
Outlook
"We are initiating an outlook for the full-year 2021 of
mid-to-high teen sales growth on an organic, constant currency
basis, with growth expected in every region and reportable
segment," said Sheahan. "Demand levels in the Industrial and
Process segments remain strong across major end markets and product
categories. Our outlook for the Contractor segment remains positive
as favorable conditions continue, however comparisons in the second
half will be challenging."
2022 Change in Organizational Structure
Effective January 1, 2022, our high performance coatings and
foam product offerings within the Applied Fluid Technologies
division of the Industrial segment will be realigned and managed
under the Contractor segment. High performance coatings and foam
equipment consists of two-component proportioning systems to spray
foam for insulating building walls, roofs, water heaters,
refrigerators, hot tubs and other items, and polyurea coatings
applied on storage tanks, pipes, roofs, truck beds, concrete and
other items. These product offerings also include equipment that
sprays specialty coatings for protection and fireproofing and
vapor-abrasive blasting equipment. The change will allow segment
leadership to address overlap of markets, products, end users and
distributors between the contractor-focused businesses.
Segment operating results will be reported under the new
organizational structure in the first quarter of 2022, in
connection with the effective date of the realignment. Historic
segment information restated to conform to the new organizational
structure is available as supplemental financial information on the
Company’s website at www.graco.com.
Financial Results Adjusted for Comparability
Excluding the impact of the prior year impairment and 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 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
Six Months Ended
Jun 25, 2021
Jun 26, 2020
Jun 25, 2021
Jun 26, 2020
Operating earnings, as reported
$
133.8
$
44.8
$
262.1
$
134.6
Impairment
—
35.0
—
35.0
Operating earnings, adjusted
$
133.8
$
79.8
$
262.1
$
169.6
Earnings before income taxes
$
131.7
$
42.0
$
257.5
$
124.1
Impairment
—
35.0
—
35.0
Earnings before income taxes, adjusted
$
131.7
$
77.0
$
257.5
$
159.1
Income taxes, as reported
$
21.6
$
13.2
$
41.7
$
22.5
Impairment tax benefit
—
1.2
—
1.2
Excess tax benefit from option
exercises
2.1
0.3
6.2
8.0
Income taxes, adjusted
$
23.7
$
14.7
$
47.9
$
31.7
Effective income tax rate
As reported
16.4
%
31.4
%
16.2
%
18.1
%
Adjusted
18.0
%
19.1
%
18.6
%
19.9
%
Net Earnings, as reported
$
110.1
$
28.8
$
215.8
$
101.7
Impairment, net
—
33.8
—
33.8
Excess tax benefit from option
exercises
(2.1
)
(0.3
)
(6.2
)
(8.0
)
Net Earnings, adjusted
$
108.0
$
62.3
$
209.6
$
127.5
Weighted Average Diluted Shares
174.6
170.5
174.2
171.6
Diluted Earnings per Share
As reported
$
0.63
$
0.17
$
1.24
$
0.59
Adjusted
$
0.62
$
0.37
$
1.20
$
0.74
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,
July 22, 2021, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s second
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, July
22, 2021, by dialing 855-859-2056, Conference ID # 9785074, 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, July 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
Six Months Ended
Jun 25, 2021
Jun 26, 2020
Jun 25, 2021
Jun 26, 2020
Net Sales
$
507,164
$
366,892
$
961,293
$
740,459
Cost of products sold
243,340
184,363
450,135
359,299
Gross Profit
263,824
182,529
511,158
381,160
Product development
21,406
17,948
40,977
35,029
Selling, marketing and distribution
69,126
48,831
131,354
106,219
General and administrative
39,449
36,015
76,698
70,365
Impairment
—
34,962
—
34,962
Operating Earnings
133,843
44,773
262,129
134,585
Interest expense
2,528
3,258
4,956
5,744
Other expense, net
(434
)
(510
)
(313
)
4,713
Earnings Before Income Taxes
131,749
42,025
257,486
124,128
Income taxes
21,631
13,193
41,681
22,478
Net Earnings
$
110,118
$
28,832
$
215,805
$
101,650
Net Earnings per Common Share
Basic
$
0.65
$
0.17
$
1.27
$
0.61
Diluted
$
0.63
$
0.17
$
1.24
$
0.59
Weighted Average Number of Shares
Basic
169,594
166,663
169,271
167,320
Diluted
174,572
170,549
174,210
171,596
SEGMENT INFORMATION
(Unaudited)
(In thousands)
Three Months Ended
Six Months Ended
Jun 25, 2021
Jun 26, 2020
Jun 25, 2021
Jun 26, 2020
Net Sales
Industrial
$
204,577
$
133,287
$
389,309
$
291,971
Process
97,233
77,759
188,606
163,837
Contractor
205,354
155,846
383,378
284,651
Total
$
507,164
$
366,892
$
961,293
$
740,459
Operating Earnings
Industrial
$
69,368
$
37,001
$
134,611
$
87,234
Process
21,676
11,672
43,409
29,783
Contractor
49,997
41,109
98,163
69,739
Unallocated corporate (expense)
(7,198
)
(10,047
)
(14,054
)
(17,209
)
Impairment
—
(34,962
)
—
(34,962
)
Total
$
133,843
$
44,773
$
262,129
$
134,585
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210721005891/en/
Financial Contact: David Lowe, 612-623-6456 Media Contact: David
Ahlers, 612-623-6699 David_M_Ahlers@graco.com
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