Sales Growth in All Segments
Graco Inc. (NYSE: GGG) today announced results for the
first quarter ended March 31, 2023.
Summary
$ in millions except per share amounts
Three Months Ended
Mar 31, 2023
Apr 1, 2022
%
Change
Net Sales
$
529.6
$
494.3
7
%
Operating Earnings
156.7
128.4
22
%
Net Earnings
129.2
100.8
28
%
Diluted Net Earnings per Common Share
$
0.75
$
0.58
29
%
Adjusted (non-GAAP): (1)
Net Earnings, adjusted
$
126.6
$
99.3
27
%
Diluted Net Earnings per Common Share,
adjusted
$
0.74
$
0.57
30
%
(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.
- Sales increased 7 percent, led by double-digit growth in the
Process segment. Sales increases in the Americas and EMEA were
partially offset by a decrease in Asia Pacific. Sales activity in
Asia Pacific improved as the quarter progressed.
- Gross profit margin rate was more than 2 percentage points
higher than the first quarter last year mainly due to the impact of
price changes and favorable product and channel mix.
- Total operating expenses increased 2 percent, but decreased as
a percentage of sales by 1 percentage point.
"We started the year strong with low double-digit revenue growth
on an organic, constant currency basis, resulting in record first
quarter revenue and operating earnings," said Mark Sheahan, Graco's
President and CEO. "While the operating environment remains
challenging, we were able to grow in all segments as component
availability improved, previous pricing actions took hold and
foreign exchange headwinds moderated driving improved margin
results during the quarter."
Consolidated Results
Changes in currency translation rates decreased sales and net
earnings by approximately $11 million and $6 million, respectively,
for the quarter.
Net sales for the quarter increased 7 percent compared to last
year (10 percent at consistent translation rates). Sales increased
13 percent in the Americas, 2 percent in EMEA (7 percent at
consistent translation rates) and decreased 6 percent in Asia
Pacific (1 percent at consistent translation rates).
Gross profit margin rate for the quarter was more than 2
percentage points higher than the first quarter last year. The
favorable effects of realized pricing and product and channel mix
offset the adverse impacts of higher product costs and changes in
currency translation rates.
Total operating expenses for the quarter increased $2 million (2
percent) compared to the first quarter last year. The increase
includes higher stock compensation of $2 million and volume and
rate-related increases of $5 million. Partially offsetting the
increase was $2 million of favorable changes in currency
translation rates and $3 million of credit losses on customer
receivables in Russia in the prior year that did not repeat.
Interest expense for the quarter decreased $4 million as private
placement debt was repaid in the first quarter last year. Other
non-operating expenses for the quarter decreased by $2 million due
to increased interest income and favorable market valuation changes
on investments held to fund certain retirement benefits.
The effective income tax rate of 18 percent for the quarter was
flat compared with the first quarter last year.
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
Contractor
Industrial
Process
Net Sales (in millions)
$
245.9
$
150.2
$
133.5
Percentage change from last year
Sales
5
%
4
%
16
%
Operating earnings
25
%
0
%
48
%
Operating earnings as a percentage of
sales
2023
30
%
35
%
30
%
2022
25
%
36
%
24
%
Components of net sales change by geographic region for the
Contractor segment were as follows:
Three Months
Volume and Price
Acquisitions
Currency
Total
Americas
8%
0%
0%
8%
EMEA
7%
0%
(5)%
2%
Asia Pacific
(8)%
0%
(6)%
(14)%
Consolidated
7%
0%
(2)%
5%
Contractor segment sales increased 5 percent, with favorable
response to new product offerings and improved product
availability. Price realization and favorable product and channel
mix drove the operating margin rate 5 percentage points higher.
Components of net sales change by geographic region for the
Industrial segment were as follows:
Three Months
Volume and Price
Acquisitions
Currency
Total
Americas
17%
0%
0%
17%
EMEA
5%
0%
(5)%
0%
Asia Pacific
(3)%
0%
(6)%
(9)%
Consolidated
7%
0%
(3)%
4%
Underlying sales growth in the Americas and EMEA was partially
offset by weakness in Asia Pacific, where finishing system sales
and other project activity decreased. The unfavorable effects of
currency translation drove a 1 percentage point decrease in the
operating margin rate.
Components of net sales change by geographic region for the
Process segment were as follows:
Three Months
Volume and Price
Acquisitions
Currency
Total
Americas
22%
2%
0%
24%
EMEA
12%
1%
(4)%
9%
Asia Pacific
6%
0%
(3)%
3%
Consolidated
16%
2%
(2)%
16%
The Process segment had sales growth in all product
applications. The operating margin rate for this segment increased
6 percentage points primarily due to price realization and expense
leverage.
Outlook
"We are pleased with the results of the first quarter and while
end market activity and demand trends for our new and existing
products are solid, we remain cautious given the current
uncertainty in the macroeconomic backdrop," said Sheahan. "We are
confirming our revenue outlook for the year of low single-digit
growth on an organic, constant currency basis."
Financial Results Adjusted for Comparability
Excluding the impacts of excess tax benefits from 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 31, 2023
Apr 1, 2022
Earnings before income taxes
$
157.4
$
122.9
Income taxes, as reported
$
28.2
$
22.1
Excess tax benefit from option
exercises
2.6
1.5
Income taxes, adjusted
$
30.8
$
23.6
Effective income tax rate
As reported
17.9
%
18.0
%
Adjusted
19.5
%
19.2
%
Net Earnings, as reported
$
129.2
$
100.8
Excess tax benefit from option
exercises
(2.6
)
(1.5
)
Net Earnings, adjusted
$
126.6
$
99.3
Weighted Average Diluted Shares
171.7
174.7
Diluted Earnings per Share
As reported
$
0.75
$
0.58
Adjusted
$
0.74
$
0.57
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 2022 (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 27, 2023, 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.
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 31, 2023
Apr 1, 2022
Net Sales
$
529,646
$
494,285
Cost of products sold
244,506
239,810
Gross Profit
285,140
254,475
Product development
20,479
19,078
Selling, marketing and distribution
65,383
62,995
General and administrative
42,610
44,039
Operating Earnings
156,668
128,363
Interest expense
1,347
5,287
Other (income) expense, net
(2,029
)
153
Earnings Before Income Taxes
157,350
122,923
Income taxes
28,184
22,080
Net Earnings
$
129,166
$
100,843
Net Earnings per Common Share
Basic
$
0.77
$
0.59
Diluted
$
0.75
$
0.58
Weighted Average Number of Shares
Basic
168,018
169,809
Diluted
171,676
174,678
SEGMENT INFORMATION
(Unaudited)
(In thousands)
Three Months Ended
Mar 31, 2023
Apr 1, 2022
Net Sales
Contractor
$
245,971
$
234,592
Industrial
150,190
144,669
Process
133,485
115,024
Total
$
529,646
$
494,285
Operating Earnings
Contractor
$
73,772
$
58,947
Industrial
52,770
52,630
Process
40,565
27,488
Unallocated corporate (expense)
(10,439
)
(10,702
)
Total
$
156,668
$
128,363
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230426005971/en/
Financial Contact: David Lowe, 612-623-6456 Media Contact: Laura
Evanson, 612-656-7435 Laura_L_Evanson@graco.com
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