Graco Reports First Quarter Results
- Decrease in net sales, operating earnings, and net earnings compared to the previous year
- Adjusted non-GAAP figures also show a decline due to lower sales volume and higher operating expenses
- EMEA region showed modest growth while challenges were faced in the Americas and Asia Pacific regions
- Gross margins improved slightly but were unable to offset the negative impact of lower sales volume on operating earnings
- CEO remains optimistic about improved order rates and new product launches, reaffirming full-year revenue guidance
- None.
Insights
Graco Inc.'s first quarter results showcase a revenue dip of
Investors should note the operational leverage effect here; despite reduced sales, the gross profit margin rate inched upward due to realized price increases. This is a positive signal of Graco's pricing power amidst softening sales. However, the increased operating expenses, particularly in unallocated corporate expenses and product development, could be points of concern as they dampen the effect of gross margin improvements and suggest a strategic focus on investment in innovation, which could pay off in the long term but may pressure short-term profitability.
Geographically, a
For retail investors, the mixed regional performance and the weakness in North American construction markets could suggest reevaluating the company's exposure to volatile sectors. Nonetheless, the reaffirmed full-year revenue guidance by Graco's CEO, banking on new product launches and improved order rates, offers a glimmer of hope for a possible rebound.
An interesting takeaway is the sharp decrease in the effective income tax rate, dropping around
Summary |
|||||||||
$ in millions except per share amounts |
|||||||||
|
Three Months Ended |
||||||||
|
Mar 29,
|
|
Mar 31,
|
|
%
|
||||
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 andAsia 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
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
Other income for the quarter increased
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 |
|||||
|
(10 |
)% |
|
0 |
% |
|
0 |
% |
|
(10 |
)% |
|
EMEA |
9 |
% |
|
0 |
% |
|
1 |
% |
|
10 |
% |
|
|
(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 |
|||||
|
(3 |
)% |
|
0 |
% |
|
0 |
% |
|
(3 |
)% |
|
EMEA |
(4 |
)% |
|
0 |
% |
|
2 |
% |
|
(2 |
)% |
|
|
(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
Components of net sales change by geographic region for the Process segment were as follows:
|
Three Months |
|||||||||||
|
Volume and Price |
|
Acquisitions |
|
Currency |
|
Total |
|||||
|
(6 |
)% |
|
0 |
% |
|
0 |
% |
|
(6 |
)% |
|
EMEA |
(8 |
)% |
|
0 |
% |
|
2 |
% |
|
(6 |
)% |
|
|
(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,
|
|
Mar 31,
|
|||||
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
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,
GRACO INC. AND SUBSIDIARIES |
||||||||
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) |
||||||||
(In thousands except per share amounts) |
||||||||
|
Three Months Ended |
|||||||
|
Mar 29,
|
|
Mar 31,
|
|||||
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,
|
|
Mar 31,
|
|||||
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
Source: Graco Inc.
FAQ
What were Graco Inc.'s (NYSE: GGG) net sales for the first quarter of 2024?
How did Graco Inc.'s (NYSE: GGG) operating earnings change in the first quarter of 2024 compared to the same period last year?
What was the percentage change in Graco Inc.'s (NYSE: GGG) net earnings for the first quarter of 2024?
What was the diluted net earnings per common share for Graco Inc. (NYSE: GGG) in the first quarter of 2024?
What was the adjusted net earnings for Graco Inc. (NYSE: GGG) in the first quarter of 2024?
What was the adjusted diluted net earnings per common share for Graco Inc. (NYSE: GGG) in the first quarter of 2024?
What was the percentage change in net sales for Graco Inc.'s Contractor segment in the first quarter of 2024?
How did Graco Inc.'s Industrial segment sales change in the first quarter of 2024 compared to the same period last year?
What was the operating margin rate for Graco Inc.'s Industrial segment in the first quarter of 2024?
What was the percentage change in net sales for Graco Inc.'s Process segment in the first quarter of 2024?
