Strong Sales Growth in All Segments and
RegionsRaises Full-Year Outlook
Graco Inc. (NYSE: GGG) today announced results for the
second quarter and six months ended June 30, 2017.
Summary
$ in millions except per share amounts
Three Months Ended Six Months Ended
Jun 30,
Jun 24,
%
Jun 30,
Jun 24,
% 2017 2016 Change 2017 2016 Change Net Sales $ 379.5
$ 348.1 9 % $ 720.1 $ 653.0 10 % Operating Earnings 98.8 78.3 26 %
184.6 139.3 33 % Net Earnings 79.8 50.9 57 % 140.6 90.5 55 %
Diluted Net Earnings per Common Share
$ 1.38 $ 0.89 55 % $ 2.43 $ 1.59 53 %
- Sales for the quarter and year to date
increased in all segments and regions.
- Gross profit margin rates for the
quarter and year to date increased due to higher production volume
and realized pricing.
- Solid sales growth combined with
improved gross margins and lower operating expenses levered
operating earnings to increases of 26 percent and 33 percent for
the quarter and year to date, respectively.
- Diluted earnings per share include
$0.23 for the quarter and $0.28 for the year to date from a
required change in accounting for stock compensation.
- Increases in diluted earnings per share
include $0.01 for the quarter and $0.02 for the year to date from
reduced amortization expense resulting from the impairment charge
recorded in the fourth quarter of 2016.
"I am pleased with Graco's second quarter performance, where we
achieved our second consecutive quarter of record sales on
double-digit growth on an organic, constant currency basis. This is
also the second consecutive quarter where we have achieved growth
in every region and reportable segment, as well as growth within
every segment in every region," said Patrick J. McHale, Graco's
President and CEO. "Profitability remained strong in the second
quarter, reflecting similar trends from the first quarter of
improved sales volumes, increased gross margin performance and
solid operating expense leverage. Our employees, end users and
channel partners around the world were instrumental to our
performance through the first half and I thank them all for their
hard work."
Consolidated Results
Sales for the quarter increased 9 percent, with increases of 7
percent in the Americas, 9 percent in EMEA (12 percent at
consistent translation rates) and 18 percent in Asia Pacific (20
percent at consistent translation rates). Sales for the year to
date increased 10 percent, with increases of 11 percent in the
Americas, 7 percent in EMEA (11 percent at consistent translation
rates) and 14 percent in Asia Pacific (16 percent at consistent
translation rates).
Changes in currency translation rates decreased sales by
approximately $4 million (1 percentage point) for the quarter and
$8 million (1 percentage point) for the year to date.
Gross profit margin rate increased by one-half percentage point
for the quarter and one percentage point for the year to date.
Favorable effects from higher production volume and realized
pricing were partially offset by unfavorable impacts of currency
translation and product mix.
Total operating expenses for the quarter and year to date were
slightly lower than last year. Year-to-date reductions from the
impact of currency translation, decreased amortization expense and
lower unallocated corporate expenses (mostly central warehouse)
more than offset volume and rate-related increases.
The effective income tax rate for the quarter was 17 percent,
down from 31 percent last year. The effective income tax rate for
the year to date was 21 percent, down from 31 percent last year.
Adoption of a new accounting standard, requiring excess tax
benefits related to stock option exercises to be credited to the
income tax provision (formerly credited to equity), reduced the tax
provision by $13.6 million for the quarter and $17.2 million for
the year to date, decreasing the effective tax rate for the quarter
and year to date by 14 and 10 percentage points, respectively.
Segment Results
Certain measurements of segment operations are summarized
below:
Three Months Ended Six Months Ended
Industrial Process Contractor
Industrial Process Contractor Net sales
(in millions) $ 174.9 $ 73.4 $ 131.2 $ 331.3 $ 143.4 $ 245.4
Percentage change from last year Sales 11 % 13 % 4 % 9 % 11 % 12 %
Operating earnings 21 % 76 % 15 % 19 % 80 % 30 % Operating earnings
as a percentage of sales
2017
35 % 18 % 26 % 35 % 19 % 24 %
2016
33 % 12 % 23 % 32 % 12 % 21 %
Components of net sales change by geographic region for the
Industrial segment were as follows:
Three Months Ended Six Months Ended
Volumeand Price
Acquisitions Currency
Total
Volumeand Price
Acquisitions Currency
Total Americas 9 % 0 % 0 % 9 % 7 % 1 % 0 % 8 % EMEA 12 % 0 % (3 )%
9 % 8 % 0 % (3 )% 5 % Asia Pacific 19 % 1 % (3 )% 17 % 18 % 1 % (3
)% 16 % Consolidated 13 % 0 % (2 )% 11 % 10 % 1 % (2 )% 9 %
Sales increased in all Industrial segment product applications.
Year-to-date operating margin rate for the Industrial segment
increased 3 percentage points compared to last year. Favorable
effects of higher sales volume, improved gross margin rate and
expense leverage were partially offset by the unfavorable effect of
currency translation.
Components of net sales change by geographic region for the
Process segment were as follows:
Three Months Ended Six Months Ended
Volumeand Price
Acquisitions Currency
Total
Volumeand Price
Acquisitions Currency
Total Americas 13 % 0 % 0 % 13 % 12 % 0 % 0 % 12 % EMEA 9 % 0 % (6
)% 3 % 12 % 0 % (7 )% 5 % Asia Pacific 33 % 0 % (3 )% 30 % 17 % 0 %
(2 )% 15 % Consolidated 15 % 0 % (2 )% 13 % 13 % 0 % (2 )% 11 %
The Process segment had solid sales growth across most product
applications, partially offset by the effects of continued weakness
in Oil and Natural Gas. Operating margin rates for this segment
increased 7 percentage points compared to last year due to higher
sales volume, favorable expense leverage and a decrease in
intangible amortization related to the impairment recorded in the
fourth quarter of 2016.
Components of net sales change by geographic region for the
Contractor segment were as follows:
Three Months Ended Six Months Ended
Volumeand Price
Acquisitions Currency
Total
Volumeand Price
Acquisitions Currency
Total Americas 2 % 0 % 0 % 2 % 12 % 0 % 0 % 12 % EMEA 14 % 0 % (4
)% 10 % 16 % 0 % (4 )% 12 % Asia Pacific 7 % 0 % (1 )% 6 % 4 % 0 %
0 % 4 % Consolidated 5 % 0 % (1 )% 4 % 12 % 0 % 0 % 12 %
Contractor segment sales increased 4 percent compared to second
quarter last year, which included new product launches that created
a tough comparable for this year. Operating margin rates for the
Contractor segment increased 3 percentage points compared to last
year due to higher sales volume, improved gross margin rate and
favorable expense leverage.
Outlook
"Demand in the second quarter remained broad-based across
products and geographies and continues to exceed our expectations,"
stated McHale. "As a result, we are raising our full-year 2017
outlook to mid-to-high single-digit organic sales growth on a
constant currency basis worldwide, from a prior outlook of mid
single-digit growth. We expect to achieve mid-to-high single-digit
growth in each geographic region for the full year 2017."
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 2016 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: our Company’s growth strategies,
which include making acquisitions, investing in new products,
expanding geographically and targeting new industries; economic
conditions in the United States and other major world economies;
changes in currency translation rates; changes in laws and
regulations; compliance with anti-corruption and trade laws; new
entrants who copy our products or infringe on our intellectual
property; risks incident to conducting business internationally;
the ability to meet our customers’ needs and changes in product
demand; supply interruptions or delays; security breaches; 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 as well as
indemnification claims under our asset purchase agreement with
Carlisle Companies Incorporated, Carlisle Fluid Technologies, Inc.,
and Finishing Brands Holdings Inc.; the possibility of decline in
purchases from few large customers of the Contractor segment;
variations in activity in the construction, automotive, mining and
oil and natural gas industries; our ability to attract, develop and
retain qualified personnel; and catastrophic events. Please refer
to Item 1A of our Annual Report on Form 10-K for fiscal year 2016
(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 27, 2017, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s second
quarter results.
A real-time webcast of the conference call will be broadcast
live over the Internet. Individuals wanting to listen and view
slides can access the call at 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 July 27, 2017, by
dialing 888-203-1112, Conference ID #8781897, if calling within the
U.S. or Canada. The dial-in number for international participants
is 719-457-0820, with the same Conference ID #. The replay by
telephone will be available through July 31, 2017.
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 or on Twitter
@GracoInc.
GRACO INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF EARNINGS (Unaudited)
(In thousands except per share
amounts)
Three Months Ended Six Months Ended Jun
30, Jun 24, Jun 30, Jun 24, 2017 2016
2017 2016 Net Sales $ 379,483 $ 348,126 $ 720,073 $ 653,038 Cost of
products sold 175,542 162,985 330,859
306,101 Gross Profit 203,941 185,141 389,214
346,937 Product development 14,901 15,607 29,400 30,293 Selling,
marketing and distribution 56,060 56,136 110,971 108,837 General
and administrative 34,211 35,056 64,253
68,516 Operating Earnings 98,769 78,342
184,590 139,291 Interest expense 4,154 4,543 8,209 9,036 Other
expense (income), net (989 ) 392 (798 )
(754 ) Earnings Before Income Taxes 95,604 73,407 177,179 131,009
Income taxes 15,776 22,460 36,619
40,510 Net Earnings $ 79,828 $ 50,947 $
140,560 $ 90,499 Net Earnings per Common Share Basic
$ 1.43 $ 0.92 $ 2.52 $ 1.63 Diluted $ 1.38 $ 0.89 $ 2.43 $ 1.59
Weighted Average Number of Shares Basic 55,801 55,634 55,785 55,514
Diluted 57,927 57,040 57,820 56,875
SEGMENT
INFORMATION (Unaudited)
(In thousands)
Three Months Ended Six Months Ended Jun
30, Jun 24, Jun 30, Jun 24, 2017 2016
2017 2016 Net Sales Industrial $ 174,868 $ 156,997 $ 331,258 $
304,085 Process 73,399 64,706 143,428 128,991 Contractor
131,216 126,423 245,387
219,962 Total $ 379,483 $ 348,126 $ 720,073
$ 653,038 Operating Earnings Industrial $ 61,596 $
51,052 $ 115,331 $ 96,846 Process 13,418 7,634 26,881 14,911
Contractor 33,759 29,364 59,778 46,107 Unallocated corporate
(expense) (10,004 ) (9,708 ) (17,400 )
(18,573 ) Total $ 98,769 $ 78,342 $ 184,590 $
139,291
The Consolidated Balance Sheets, Consolidated Statements of Cash
Flows and Management's Discussion and Analysis are available in our
Quarterly Report on Form 10-Q on our website at www.graco.com.
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version on businesswire.com: http://www.businesswire.com/news/home/20170726006340/en/
Graco Inc.Financial Contact:Christian Rothe,
612-623-6205orMedia Contact:Charlotte Boyd,
612-623-6153Charlotte_M_Boyd@graco.com
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