Graco Reports Second Quarter Results

Graco Inc. (NYSE: GGG) today announced results for the second quarter ended June 28, 2024.

Summary

$ in millions except per share amounts

 

 

Three Months Ended

 

Six Months Ended

 

Jun 28,

2024

 

Jun 30,

2023

 

%

Change

 

Jun 28,

2024

 

Jun 30,

2023

 

%

Change

Net Sales

$

553.2

 

$

559.6

 

(1

)%

 

$

1,045.4

 

$

1,089.3

 

(4

)%

Operating Earnings

 

161.4

 

 

157.1

 

3

%

 

 

294.4

 

 

313.7

 

(6

)%

Net Earnings

 

133.0

 

 

134.3

 

(1

)%

 

 

255.2

 

 

263.4

 

(3

)%

Diluted Net Earnings per Common Share

$

0.77

 

$

0.78

 

(1

)%

 

$

1.48

 

$

1.53

 

(3

)%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted (non-GAAP): (1)

 

 

 

 

 

 

 

 

 

 

 

Net Earnings, adjusted

$

132.2

 

$

128.8

 

3

%

 

$

244.8

 

$

255.3

 

(4

)%

Diluted Net Earnings per Common Share, adjusted

$

0.77

 

$

0.75

 

3

%

 

$

1.42

 

$

1.48

 

(4

)%

(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 for the second quarter decreased 1 percent. Sales growth in the Contractor segment was unable to offset declines in the Industrial and Process segments. Regionally, sales decreased in EMEA and Asia Pacific and increased in the Americas.
  • Operating earnings for the second quarter increased 3 percent, as an improved gross profit margin rate offset lower sales volume and higher operating expenses.
  • Net earnings for the second quarter decreased 1 percent as higher operating earnings and lower interest expense were unable to offset the impact of a higher effective income tax rate. On an adjusted basis, net earnings increased 3 percent.

“Strength in the Contractor segment this quarter was not enough to offset declines elsewhere, resulting in overall sales performance that was below our expectations," said Mark Sheahan, Graco's President and CEO. "New product introductions in Contractor were well-received and led to sales growth. Declines in Asia Pacific were driven largely by the China market, where softening demand is negatively impacting our sealant and adhesives, powder coating equipment and semiconductor businesses. Operating earnings performance was strong for the quarter with an expansion of more than 100 basis points when compared to our second quarter last year."

Consolidated Results

Net sales for the second quarter decreased 1 percent from the comparable period last year. Second quarter net sales increased 5 percent in the Americas, decreased 6 percent in EMEA (5 percent at consistent translation rates) and decreased 18 percent in Asia Pacific (16 percent at consistent translation rates). Year-to-date net sales decreased 4 percent from the comparable period last year. Year-to-date net sales decreased 1 percent in the Americas, decreased 2 percent in EMEA (3 percent at consistent translation rates) and decreased 17 percent in Asia Pacific (15 percent at consistent translation rates). Changes in currency translation rates decreased worldwide sales by $3 million for the quarter and $4 million for the year to date.

Gross profit margin rate improved 2 percentage points for the second quarter and 1 percentage point for the year to date from the comparable periods last year mostly due to lower product costs and realized price increases.

Total operating expenses for the second quarter were $5 million (4 percent) higher than the second quarter last year. The increase for the quarter included approximately $3 million of expenses associated with the relocation to a new distribution center and $2 million related to product development, growth initiatives and other corporate items. Year-to-date operating expenses increased $10 million (4 percent) compared to the first half last year. The increase included $5 million related to product development, growth initiatives and other corporate items, $3 million associated with the distribution center relocation, and $2 million of incremental share-based compensation. Operating expense rate-related increases of approximately 3 percent for both the quarter and year to date were mostly offset by reductions in sales and earnings-based expenses.

Interest expense was $1 million lower for the second quarter and $2 million lower for the year to date compared to the same periods last year as private placement debt was repaid in the third quarter of 2023. Other income was flat for the quarter and increased $6 million year-to-date from the comparable periods last year. The year-to-date increase was largely due to increased interest income.

The effective income tax rate was up 4 percentage points to 20 percent for the second quarter and down 1 percentage point to 16 percent for the year to date from the comparable periods last year due primarily to variations 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

 

Six Months

 

Contractor

 

Industrial

 

Process

 

Contractor

 

Industrial

 

Process

Net Sales (in millions)

$

269.6

 

 

$

155.7

 

 

$

127.9

 

 

$

499.7

 

 

$

297.7

 

 

$

248.0

 

Percentage change from last year

 

 

 

 

 

 

 

 

 

 

 

Sales

 

5

%

 

 

(5

)%

 

 

(9

)%

 

 

%

 

 

(5

)%

 

 

(9

)%

Operating earnings

 

22

%

 

 

(6

)%

 

 

(15

)%

 

 

6

%

 

 

(10

)%

 

 

(14

)%

Operating earnings as a percentage of sales

 

 

 

 

 

 

 

 

 

 

 

2024

 

31

%

 

 

34

%

 

 

29

%

 

 

30

%

 

 

33

%

 

 

29

%

2023

 

27

%

 

 

34

%

 

 

31

%

 

 

28

%

 

 

35

%

 

 

31

%

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

9%

 

0%

 

0%

 

9%

 

(1)%

 

0%

 

0%

 

(1)%

EMEA

(7)%

 

0%

 

(1)%

 

(8)%

 

0%

 

0%

 

1%

 

1%

Asia Pacific

10%

 

0%

 

(3)%

 

7%

 

3%

 

0%

 

(4)%

 

(1)%

Consolidated

6%

 

0%

 

(1)%

 

5%

 

0%

 

0%

 

0%

 

0%

Favorable response from new product offerings led to a 5 percent increase in net sales for the second quarter. Net sales were flat for the year to date as favorable response from new product offerings offset softness in worldwide construction markets. The operating margin rate increased 4 percentage points for the quarter driven by lower product costs and price realization. For the year to date, lower product costs and price realization were partially offset by higher expenses, particularly in new product development, resulting in a 2 percentage point increase to the operating margin rate.

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

10%

 

0%

 

0%

 

10%

 

4%

 

0%

 

0%

 

4%

EMEA

(2)%

 

0%

 

(1)%

 

(3)%

 

(3)%

 

0%

 

0%

 

(3)%

Asia Pacific

(25)%

 

0%

 

(2)%

 

(27)%

 

(19)%

 

0%

 

(2)%

 

(21)%

Consolidated

(4)%

 

0%

 

(1)%

 

(5)%

 

(5)%

 

0%

 

0%

 

(5)%

Industrial segment net sales decreased 5 percent for the second quarter and year to date, as growth in the Americas was more than offset by double-digit declines in Asia Pacific. The operating margin rate was flat for the quarter and decreased 2 percentage points for the year to date. The favorable effects of product and channel mix was able to offset higher expenses for the quarter, but unable to offset higher expenses for the year to date. Changes in foreign currency translation rates further reduced the operating margin rate for the year to date.

Components of net sales change by geographic region for the Process segment were as follows:

 

Three Months

 

Six Months

 

Volume

and Price

 

Acquisitions

 

Currency

 

Total

 

Volume

and Price

 

Acquisitions

 

Currency

 

Total

Americas

(5)%

 

0%

 

0%

 

(5)%

 

(6)%

 

0%

 

0%

 

(6)%

EMEA

(9)%

 

0%

 

0%

 

(9)%

 

(8)%

 

0%

 

0%

 

(8)%

Asia Pacific

(19)%

 

0%

 

(1)%

 

(20)%

 

(20)%

 

0%

 

(2)%

 

(22)%

Consolidated

(9)%

 

0%

 

0%

 

(9)%

 

(9)%

 

0%

 

0%

 

(9)%

Process segment net sales decreased 9 percent for both the second quarter and year to date, as sales decreased in most product applications. Weakness in the semiconductor and industrial lubrication product applications was notable for both the quarter and year to date. The operating margin rate for this segment decreased approximately 2 percentage points for the quarter and year to date due primarily to unfavorable expense leverage on lower sales volume.

Outlook

“Given the slow first half of the year in both our Industrial and Process segments, we are lowering our full-year 2024 worldwide outlook to low single-digit sales decline on an organic, constant currency basis,” stated Sheahan. “While overall economic conditions are challenging, particularly in Asia Pacific, Graco is well-positioned for the long term as we continue to pursue our proven growth strategies and invest in our businesses.”

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

 

Six Months Ended

 

Jun 28,

2024

 

Jun 30,

2023

 

Jun 28,

2024

 

Jun 30,

2023

Earnings before income taxes

$

165.2

 

 

$

159.6

 

 

$

305.5

 

 

$

317.0

 

 

 

 

 

 

 

 

 

Income taxes, as reported

$

32.2

 

 

$

25.4

 

 

$

50.3

 

 

$

53.5

 

Excess tax benefit from option exercises

 

0.8

 

 

 

5.5

 

 

 

10.4

 

 

 

8.1

 

Income taxes, adjusted

$

33.0

 

 

$

30.9

 

 

$

60.7

 

 

$

61.6

 

 

 

 

 

 

 

 

 

Effective income tax rate

 

 

 

 

 

 

 

As reported

 

19.5

%

 

 

15.9

%

 

 

16.5

%

 

 

16.9

%

Adjusted

 

20.0

%

 

 

19.4

%

 

 

19.9

%

 

 

19.4

%

 

 

 

 

 

 

 

 

Net Earnings, as reported

$

133.0

 

 

$

134.3

 

 

$

255.2

 

 

$

263.4

 

Excess tax benefit from option exercises

 

(0.8

)

 

 

(5.5

)

 

 

(10.4

)

 

 

(8.1

)

Net Earnings, adjusted

$

132.2

 

 

$

128.8

 

 

$

244.8

 

 

$

255.3

 

 

 

 

 

 

 

 

 

Weighted Average Diluted Shares

 

172.5

 

 

 

172.6

 

 

 

172.5

 

 

 

172.1

 

Diluted Earnings per Share

 

 

 

 

 

 

 

As reported

$

0.77

 

 

$

0.78

 

 

$

1.48

 

 

$

1.53

 

Adjusted

$

0.77

 

 

$

0.75

 

 

$

1.42

 

 

$

1.48

 

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; international and domestic 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, July 25, 2024, 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.

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 28,

2024

 

Jun 30,

2023

 

Jun 28,

2024

 

Jun 30,

2023

Net Sales

$

553,243

 

 

$

559,644

 

 

$

1,045,432

 

 

$

1,089,290

 

Cost of products sold

 

252,389

 

 

 

268,229

 

 

 

478,381

 

 

 

512,735

 

Gross Profit

 

300,854

 

 

 

291,415

 

 

 

567,051

 

 

 

576,555

 

Product development

 

21,897

 

 

 

21,286

 

 

 

43,769

 

 

 

41,765

 

Selling, marketing and distribution

 

69,001

 

 

 

68,380

 

 

 

135,632

 

 

 

133,763

 

General and administrative

 

48,597

 

 

 

44,697

 

 

 

93,295

 

 

 

87,307

 

Operating Earnings

 

161,359

 

 

 

157,052

 

 

 

294,355

 

 

 

313,720

 

Interest expense

 

634

 

 

 

1,798

 

 

 

1,378

 

 

 

3,145

 

Other (income) expense, net

 

(4,453

)

 

 

(4,365

)

 

 

(12,531

)

 

 

(6,394

)

Earnings Before Income Taxes

 

165,178

 

 

 

159,619

 

 

 

305,508

 

 

 

316,969

 

Income taxes

 

32,200

 

 

 

25,351

 

 

 

50,331

 

 

 

53,535

 

Net Earnings

$

132,978

 

 

$

134,268

 

 

$

255,177

 

 

$

263,434

 

Net Earnings per Common Share

 

 

 

 

 

 

 

Basic

$

0.79

 

 

$

0.80

 

 

$

1.51

 

 

$

1.56

 

Diluted

$

0.77

 

 

$

0.78

 

 

$

1.48

 

 

$

1.53

 

Weighted Average Number of Shares

 

 

 

 

 

 

 

Basic

 

169,100

 

 

 

168,683

 

 

 

168,795

 

 

 

168,351

 

Diluted

 

172,486

 

 

 

172,551

 

 

 

172,466

 

 

 

172,114

 

SEGMENT INFORMATION (Unaudited)

(In thousands)

 

 

Three Months Ended

 

Six Months Ended

 

Jun 28,

2024

 

Jun 30,

2023

 

Jun 28,

2024

 

Jun 30,

2023

Net Sales

 

 

 

 

 

 

 

Contractor

$

269,638

 

 

$

255,648

 

 

$

499,680

 

 

$

501,619

 

Industrial

 

155,708

 

 

 

163,523

 

 

 

297,699

 

 

 

313,713

 

Process

 

127,897

 

 

 

140,473

 

 

 

248,053

 

 

 

273,958

 

Total

$

553,243

 

 

$

559,644

 

 

$

1,045,432

 

 

$

1,089,290

 

Operating Earnings

 

 

 

 

 

 

 

Contractor

$

84,362

 

 

$

68,868

 

 

$

150,503

 

 

$

142,640

 

Industrial

 

52,720

 

 

 

55,887

 

 

 

97,521

 

 

 

108,657

 

Process

 

37,279

 

 

 

43,620

 

 

 

72,319

 

 

 

84,185

 

Unallocated corporate (expense)

 

(13,002

)

 

 

(11,323

)

 

 

(25,988

)

 

 

(21,762

)

Total

$

161,359

 

 

$

157,052

 

 

$

294,355

 

 

$

313,720

 

 

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