Double-Digit Sales Growth in Process and
Contractor Segments
Graco Inc. (NYSE: GGG) today announced results for the
third quarter ended September 30, 2022.
Summary
$ in millions except per share amounts
Three Months Ended
Nine Months Ended
Sep 30, 2022
Sep 24, 2021
% Change
Sep 30, 2022
Sep 24, 2021
% Change
Net Sales
$
545.6
$
486.7
12
%
$
1,588.5
$
1,448.0
10
%
Operating Earnings
143.1
124.6
15
%
420.2
386.7
9
%
Net Earnings
116.2
103.8
12
%
334.5
319.6
5
%
Diluted Net Earnings per Common Share
$
0.67
$
0.59
14
%
$
1.93
$
1.83
5
%
Adjusted (non-GAAP): (1)
Net Earnings, adjusted
$
114.8
$
100.3
14
%
$
331.3
$
309.9
7
%
Diluted Net Earnings per Common Share,
adjusted
$
0.66
$
0.57
16
%
$
1.91
$
1.78
7
%
(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.
- Changes in currency translation rates reduced sales and net
earnings by approximately $20 million and $9 million, respectively,
for the quarter.
- Sales for the quarter increased 12 percent, including 16
percentage points of organic sales growth and 1 percentage point of
sales growth from acquired operations, partially offset by 5
percentage points of currency translation headwinds.
- The gross profit margin rate decreased approximately 3
percentage points for the quarter as strong realized pricing was
unable to offset higher product costs and unfavorable currency
translation.
- Total operating expenses decreased 5 percent for the quarter
due to currency translation and lower sales and earnings-based
expenses.
- Expense leverage largely offset the effects of lower gross
profit margin rates on operating earnings.
"Graco delivered record third quarter sales and earnings despite
rising costs and foreign currency headwinds," said Mark Sheahan,
Graco's President and CEO. "Business tempo remained solid with
strong growth in both revenue and operating earnings in all
reportable segments and regions on an organic, constant currency
basis. Incoming orders outpaced product shipments in the quarter
giving us substantial backlog as we enter the fourth quarter."
Consolidated Results
Changes in currency translation rates reduced sales and net
earnings by approximately $20 million and $9 million, respectively,
for the quarter and $43 million and $20 million, respectively, for
the year to date.
Net sales for the quarter increased 12 percent from the
comparable period last year (17 percent at consistent translation
rates). Sales increased 19 percent in the Americas, 10 percent in
Asia Pacific (18 percent at consistent translation rates) and
decreased 3 percent in EMEA (up 10 percent at consistent
translation rates). Year-to-date sales increased 10 percent from
the comparable period last year (13 percent at consistent
translation rates). Sales increased 14 percent in the Americas, 14
percent in Asia Pacific (19 percent at consistent translation
rates) and decreased 4 percent in EMEA (up 6 percent at consistent
translation rates). Sales from acquired operations contributed
approximately $3 million (1 percentage point) to the third quarter
and $8 million (1 percentage point) year to date.
Gross profit margin rates for the quarter and year to date
decreased 3 percentage points from the comparable periods last
year. Realized pricing was unable to offset higher product costs
and the adverse impacts of changes in currency translation
rates.
Total operating expenses for the quarter decreased $6 million (5
percent) compared to the third quarter last year. Reductions of $5
million from the impact of currency translation and $3 million from
lower sales and earnings-based expenses were partially offset by
volume and rate related increases. Year-to-date operating expenses
decreased $8 million compared to the same period last year.
Reductions of $10 million from the impact of currency translation
and $10 million from lower sales and earnings-based expenses were
partially offset by $3 million of allowances for credit losses on
customer receivables in Russia and volume and rate related
increases.
The effective income tax rate was 18 percent for the quarter and
19 percent for the year to date, up approximately 3 percentage
points respectively, from the comparable periods last year. The
increases were primarily due to decreases in excess tax benefits
from stock option exercises and the unfavorable effects of foreign
earnings taxed at higher rates than the U.S.
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
Nine Months
Industrial
Process
Contractor
Industrial
Process
Contractor
Net Sales (in millions)
$
156.1
$
125.4
$
264.1
$
459.2
$
364.9
$
764.4
Percentage change from last year
Sales
1
%
30
%
12
%
7
%
28
%
4
%
Operating earnings
6
%
42
%
11
%
17
%
37
%
(5
)%
Operating earnings as a percentage of
sales
2022
35
%
24
%
25
%
35
%
24
%
25
%
2021
33
%
22
%
25
%
32
%
23
%
28
%
Components of net sales change by geographic region for the
Industrial segment were as follows:
Three Months
Nine Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
11%
0%
0%
11%
16%
0%
(1)%
15%
EMEA
3%
0%
(14)%
(11)%
9%
0%
(11)%
(2)%
Asia Pacific
11%
0%
(8)%
3%
12%
0%
(5)%
7%
Consolidated
8%
0%
(7)%
1%
12%
0%
(5)%
7%
For both the quarter and year to date, strong Industrial segment
sales growth in the Americas and Asia Pacific was partially offset
by weakness in EMEA due to unfavorable macroeconomic conditions.
The operating margin rate increased for both the quarter and year
to date as strong realized pricing and expense leverage more than
offset higher product costs and the adverse impacts of currency
translation.
Components of net sales change by geographic region for the
Process segment were as follows:
Three Months
Nine Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
27%
4%
0%
31%
24%
3%
0%
27%
EMEA
30%
1%
(11)%
20%
22%
1%
(7)%
16%
Asia Pacific
40%
1%
(7)%
34%
44%
1%
(5)%
40%
Consolidated
30%
4%
(4)%
30%
28%
2%
(2)%
28%
The Process segment had double-digit sales growth in all product
applications and regions for the quarter and year to date. The
operating margin rate for this segment increased 2 percentage
points for the quarter and 1 percentage point for the year to date
as increased volume and expense leverage offset higher product
costs, unfavorable product and channel mix and the adverse impacts
of currency translation.
Components of net sales change by geographic region for the
Contractor segment were as follows:
Three Months
Nine Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
18%
0%
(1)%
17%
9%
0%
0%
9%
EMEA
12%
0%
(13)%
(1)%
(4)%
1%
(9)%
(12)%
Asia Pacific
7%
0%
(8)%
(1)%
6%
0%
(5)%
1%
Consolidated
16%
0%
(4)%
12%
6%
1%
(3)%
4%
Contractor segment sales increased 12 percent for the quarter
compared to last year due to improved product availability. Sales
increased 4 percent for the year to date primarily due to continued
strength in North American construction markets. Price realization,
favorable product and channel mix and expense leverage offset
higher product costs for the quarter, which resulted in a
consistent operating margin rate compared to last year. For the
year to date, the operating margin rate decreased 3 percentage
points primarily due to higher product costs and the adverse
impacts of currency translation.
Outlook
"While macroeconomic conditions are uncertain, we are positioned
to have a record year in 2022," said Sheahan. "We remain committed
to our strategies of launching new products, entering new markets,
expanding our global channel and pursuing strategic acquisitions.
We are raising our full-year outlook to low double-digit organic
revenue growth on a constant currency basis."
Financial Results Adjusted for Comparability
Excluding the impacts of excess tax benefits related to stock
option exercises and certain non-recurring 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
Nine Months Ended
Sep 30, 2022
Sep 24, 2021
Sep 30, 2022
Sep 24, 2021
Earnings before income taxes
$
142.4
$
121.8
$
411.8
$
379.2
Income taxes, as reported
$
26.2
$
17.9
$
77.3
$
59.6
Excess tax benefit from option
exercises
1.4
2.6
3.2
8.8
Other non-recurring tax benefit
—
0.9
—
0.9
Income taxes, adjusted
$
27.6
$
21.4
$
80.5
$
69.3
Effective income tax rate
As reported
18.4
%
14.7
%
18.8
%
15.7
%
Adjusted
19.4
%
17.6
%
19.6
%
18.3
%
Net Earnings, as reported
$
116.2
$
103.8
$
334.5
$
319.6
Excess tax benefit from option
exercises
(1.4
)
(2.6
)
(3.2
)
(8.8
)
Other non-recurring tax benefit
—
(0.9
)
—
(0.9
)
Net Earnings, adjusted
$
114.8
$
100.3
$
331.3
$
309.9
Weighted Average Diluted Shares
172.8
174.8
173.4
174.4
Diluted Earnings per Share
As reported
$
0.67
$
0.59
$
1.93
$
1.83
Adjusted
$
0.66
$
0.57
$
1.91
$
1.78
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; Russia's invasion of Ukraine, and the
sanctions and actions taken against Russia and Belarus in response
to the invasion; 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 2021 (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,
October 27, 2022, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s
third 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.
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
Nine Months Ended
Sep 30, 2022
Sep 24, 2021
Sep 30, 2022
Sep 24, 2021
Net Sales
$
545,644
$
486,696
$
1,588,476
$
1,447,989
Cost of products sold
284,556
238,462
803,853
688,597
Gross Profit
261,088
248,234
784,623
759,392
Product development
19,704
19,762
58,749
60,739
Selling, marketing and distribution
61,386
66,078
186,457
197,432
General and administrative
36,849
37,795
119,225
114,493
Operating Earnings
143,149
124,599
420,192
386,728
Interest expense
1,542
2,500
8,555
7,456
Other expense (income), net
(866
)
344
(106
)
31
Earnings Before Income Taxes
142,473
121,755
411,743
379,241
Income taxes
26,241
17,926
77,290
59,607
Net Earnings
$
116,232
$
103,829
$
334,453
$
319,634
Net Earnings per Common Share
Basic
$
0.69
$
0.61
$
1.97
$
1.89
Diluted
$
0.67
$
0.59
$
1.93
$
1.83
Weighted Average Number of Shares
Basic
169,166
169,834
169,368
169,459
Diluted
172,789
174,774
173,388
174,398
SEGMENT INFORMATION
(Unaudited)
(In thousands)
Three Months Ended
Nine Months Ended
Sep 30, 2022
Sep 24, 2021
Sep 30, 2022
Sep 24, 2021
Net Sales
Industrial
$
156,182
$
154,560
$
459,176
$
428,872
Process
125,376
96,185
364,883
284,790
Contractor
264,086
235,951
764,417
734,327
Total
$
545,644
$
486,696
$
1,588,476
$
1,447,989
Operating Earnings
Industrial
$
53,964
$
50,812
$
161,795
$
138,879
Process
30,638
21,514
89,183
64,923
Contractor
65,123
58,659
192,314
203,366
Unallocated corporate (expense)
(6,576
)
(6,386
)
(23,100
)
(20,440
)
Total
$
143,149
$
124,599
$
420,192
$
386,728
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221026005872/en/
Financial Contact: David Lowe, 612-623-6456 Media Contact:
Taylor Juve, 612-623-6153 Taylor_M_Juve@graco.com
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