Graco Inc. (NYSE: GGG) today announced results for the
first quarter ended March 29, 2024.
Summary
$ in millions except per share amounts
Three Months Ended
Mar 29, 2024
Mar 31, 2023
% Change
Net Sales
$
492.2
$
529.6
(7
)%
Operating Earnings
133.0
156.7
(15
)%
Net Earnings
122.2
129.2
(5
)%
Diluted Net Earnings per Common Share
$
0.71
$
0.75
(5
)%
Adjusted (non-GAAP): (1)
Net Earnings, adjusted
$
112.6
$
126.6
(11
)%
Diluted Net Earnings per Common Share,
adjusted
$
0.65
$
0.74
(12
)%
(1)
Excludes the impact 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 decreased 7 percent, with decreases in all segments.
Regionally, sales decreased in the Americas and Asia Pacific and
were up modestly in EMEA.
- Operating earnings decreased 15 percent, as an improved gross
profit margin rate was unable to offset lower sales volume and
higher operating expenses.
- Net earnings decreased 5 percent as increased interest income
and lower interest expense softened the decrease in operating
earnings. On an adjusted basis, net earnings decreased 11
percent.
"Sales were down in all segments and regions for the first
quarter, with the exception of EMEA Contractor," said Mark Sheahan,
Graco's President and CEO. "The quarter was weaker than expected,
which creates a challenging start to the year. Gross margins
improved slightly, however lower sales volume negatively impacted
operating earnings in the quarter."
Consolidated Results
Net sales for the first quarter decreased 7 percent from the
comparable period last year. Sales decreased 8 percent in the
Americas, increased 2 percent in EMEA (sales were flat at
consistent translation rates) and decreased 16 percent in Asia
Pacific (14 percent at consistent translation rates).
Gross profit margin rate for the quarter improved slightly from
the comparable period last year. The favorable effect of realized
price increases more than offset unfavorable product and channel
mix.
Total operating expenses for the quarter increased $5 million (4
percent) compared to last year, including approximately $3 million
(2 percentage points) of increased unallocated corporate operating
expense (mostly from incremental share-based compensation) and $1
million (1 percentage point) of increases in product development
spending.
Other income for the quarter increased $6 million from the
comparable period last year, largely due to increased interest
income of approximately $4 million.
The effective income tax rate was 13 percent, down approximately
5 percentage points from last year. The decrease was due primarily
to an increase 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
Contractor
Industrial
Process
Net Sales (in millions)
$
230.0
$
142.0
$
120.2
Percentage change from last year
Sales
(6
)%
(5
)%
(10
)%
Operating earnings
(10
)%
(15
)%
(14
)%
Operating earnings as a percentage of
sales
2024
29
%
32
%
29
%
2023
30
%
35
%
30
%
Components of net sales change by geographic region for the
Contractor segment were as follows:
Three Months
Volume and Price
Acquisitions
Currency
Total
Americas
(10
)%
0
%
0
%
(10
)%
EMEA
9
%
0
%
1
%
10
%
Asia Pacific
(4
)%
0
%
(4
)%
(8
)%
Consolidated
(6
)%
0
%
0
%
(6
)%
Continued weakness in North American construction markets led to
a 6 percent decrease in sales for the quarter. Unfavorable product
and channel mix and increased spending related to product
development resulted in a 1 percentage point decrease in the
operating margin rate for the quarter. Improved price realization
and lower product costs were unable to offset the decline in the
operating margin rate.
Components of net sales change by geographic region for the
Industrial segment were as follows:
Three Months
Volume and Price
Acquisitions
Currency
Total
Americas
(3
)%
0
%
0
%
(3
)%
EMEA
(4
)%
0
%
2
%
(2
)%
Asia Pacific
(12
)%
0
%
(3
)%
(15
)%
Consolidated
(5
)%
0
%
0
%
(5
)%
Industrial segment sales decreased in all regions for the
quarter, including a double-digit decrease in Asia Pacific, where
economic activity weakened compared to last year. The decline was
partially offset by an increase in powder finishing system sales in
the Americas. The first quarter operating margin rate for this
segment deceased 3 percentage points, mainly due to the unfavorable
effects of product and channel mix and expense leverage.
Components of net sales change by geographic region for the
Process segment were as follows:
Three Months
Volume and Price
Acquisitions
Currency
Total
Americas
(6
)%
0
%
0
%
(6
)%
EMEA
(8
)%
0
%
2
%
(6
)%
Asia Pacific
(22
)%
0
%
(1
)%
(23
)%
Consolidated
(10
)%
0
%
0
%
(10
)%
Process segment sales decreased in all regions for the quarter
primarily due to weakness in the semiconductor product application.
The operating margin rate for this segment decreased approximately
1 percentage point as price realization was more than offset by
unfavorable expense leverage on lower sales volume.
Outlook
"Despite the slow start to the year, incoming order rates gained
momentum as the quarter progressed. Improved order rates together
with exciting new products scheduled to launch in the second
quarter support our outlook for the year," said Sheahan. "We are
reaffirming our full-year revenue guidance 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 adjusted
measurements of income taxes, effective income tax rate, net
earnings and diluted earnings per share follows (in millions except
per share amounts):
Three Months Ended
Mar 29, 2024
Mar 31, 2023
Earnings before income taxes
$
140.3
$
157.4
Income taxes, as reported
$
18.1
$
28.2
Excess tax benefit from option
exercises
9.6
2.6
Income taxes, adjusted
$
27.7
$
30.8
Effective income tax rate
As reported
12.9
%
17.9
%
Adjusted
19.8
%
19.5
%
Net Earnings, as reported
$
122.2
$
129.2
Excess tax benefit from option
exercises
(9.6
)
(2.6
)
Net Earnings, adjusted
$
112.6
$
126.6
Weighted Average Diluted Shares
172.4
171.7
Diluted Earnings per Share
As reported
$
0.71
$
0.75
Adjusted
$
0.65
$
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 2023 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, risks relating to the demand for
our products and the level of commercial and industrial activity
worldwide; changes in currency translation rates; Russia’s invasion
of Ukraine and other political instability; interest rate
fluctuations and changes in credit markets; global sourcing of
materials; interruptions of or intrusions into our information
systems; intellectual property rights; the use of generative
artificial intelligence; conducting business internationally;
catastrophic events; our ability to attract, develop and retain
qualified personnel; public health crises; our growth strategies
and acquisitions; potential goodwill impairment; our ability to
compete effectively; our dependence on a few large customers; our
dependence on cyclical industries; changes in laws and regulations;
climate-related laws, regulations and accords; environmental,
social and governance-related expectations and requirements;
compliance with anti-corruption and trade laws; changes in tax
rates or the adoption of new tax legislation; and costs associated
with legal proceedings. Please refer to Item 1A of our Annual
Report on Form 10-K for fiscal year 2023 (and the 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 of our Annual Report on Form 10-K
for fiscal year 2023 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 25, 2024, 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 29, 2024
Mar 31, 2023
Net Sales
$
492,189
$
529,646
Cost of products sold
225,992
244,506
Gross Profit
266,197
285,140
Product development
21,872
20,479
Selling, marketing and distribution
66,631
65,383
General and administrative
44,698
42,610
Operating Earnings
132,996
156,668
Interest expense
744
1,347
Other (income) expense, net
(8,078
)
(2,029
)
Earnings Before Income Taxes
140,330
157,350
Income taxes
18,131
28,184
Net Earnings
$
122,199
$
129,166
Net Earnings per Common Share
Basic
$
0.73
$
0.77
Diluted
$
0.71
$
0.75
Weighted Average Number of Shares
Basic
168,490
168,018
Diluted
172,446
171,676
SEGMENT INFORMATION
(Unaudited)
(In thousands)
Three Months Ended
Mar 29, 2024
Mar 31, 2023
Net Sales
Contractor
$
230,042
$
245,971
Industrial
141,991
150,190
Process
120,156
133,485
Total
$
492,189
$
529,646
Operating Earnings
Contractor
$
66,141
$
73,772
Industrial
44,801
52,770
Process
35,040
40,565
Unallocated corporate (expense)
(12,986
)
(10,439
)
Total
$
132,996
$
156,668
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240424864283/en/
Financial Contact: David Lowe, 612-623-6456 Media Contact:
Meredith Sobieck, 612-623-6427 Meredith_A_Sobieck@graco.com
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