Graco Reports Record Quarterly Operating Earnings
- Graco achieved record operating earnings for Q3 with a 14% increase in operating earnings and a 15% increase in net earnings. Diluted net earnings per common share also increased by 15%.
- Net sales decreased by 1% for Q3 compared to last year.
Summary |
|||||||||||||||||
$ in millions except per share amounts |
|||||||||||||||||
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||||
|
Sep 29,
|
|
Sep 30,
|
|
%
|
|
Sep 29,
|
|
Sep 30,
|
|
%
|
||||||
Net Sales |
$ |
539.7 |
|
$ |
545.6 |
|
(1 |
)% |
|
$ |
1,629.0 |
|
$ |
1,588.5 |
|
3 |
% |
Operating Earnings |
|
163.2 |
|
|
143.1 |
|
14 |
% |
|
|
476.9 |
|
|
420.2 |
|
13 |
% |
Net Earnings |
|
133.1 |
|
|
116.2 |
|
15 |
% |
|
|
396.6 |
|
|
334.5 |
|
19 |
% |
Diluted Net Earnings per Common Share |
$ |
0.77 |
|
$ |
0.67 |
|
15 |
% |
|
$ |
2.30 |
|
$ |
1.93 |
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Adjusted (non-GAAP): (1) |
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating Earnings, adjusted |
$ |
162.4 |
|
$ |
143.1 |
|
13 |
% |
|
$ |
476.1 |
|
$ |
420.2 |
|
13 |
% |
Net Earnings, adjusted |
$ |
131.5 |
|
$ |
114.8 |
|
15 |
% |
|
$ |
386.9 |
|
$ |
331.3 |
|
17 |
% |
Diluted Net Earnings per Common Share, adjusted |
$ |
0.76 |
|
$ |
0.66 |
|
15 |
% |
|
$ |
2.24 |
|
$ |
1.91 |
|
17 |
% |
(1) |
Excludes impacts of contingent consideration fair value adjustments, impairment charges and 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 1 percent for the quarter. Sales growth in the Process segment was offset by a decline in the Contractor segment.
- Gross profit margin rate for the quarter was 5 percentage points higher than the comparable period last year due to realized pricing and lower product costs.
- Operating earnings expressed as a percentage of sales for the quarter increased 4 percentage points to 30 percent.
"Graco achieved record operating earnings for the third quarter," said Mark Sheahan, Graco's President and CEO. "We saw softer demand in some of our key end markets that were partially offset by broad-based sales growth in the Process segment. Global construction markets weakened and the Industrial segment project business in EMEA was a headwind. Strong price realization and lower input costs led to operating margins of
Consolidated Results
Net sales for the quarter decreased 1 percent from the comparable period last year (2 percent at consistent translation rates). Sales were flat in the
Gross profit margin rates for the quarter and year to date increased from the comparable periods last year mainly due to realized pricing. The impact of lower product costs further increased the gross profit margin rate in the quarter from the comparable period last year.
Operating expenses for the quarter and year to date included a non-cash goodwill impairment charge of
Interest expense was flat for the quarter and decreased
The effective income tax rate was up 1 percentage point to 19 percent for the quarter and down 1 percentage point to 18 percent for the year to date from the comparable periods last year due to variations in excess tax benefits from 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 |
|
Nine Months |
||||||||||||||||||||
|
Contractor |
|
Industrial |
|
Process |
|
Contractor |
|
Industrial |
|
Process |
||||||||||||
Net Sales (in millions) |
$ |
245.3 |
|
|
$ |
157.1 |
|
|
$ |
137.3 |
|
|
$ |
746.9 |
|
|
$ |
470.8 |
|
|
$ |
411.3 |
|
Percentage change from last year |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Sales |
|
(7 |
)% |
|
|
1 |
% |
|
|
10 |
% |
|
|
(2 |
)% |
|
|
3 |
% |
|
|
13 |
% |
Operating earnings |
|
13 |
% |
|
|
1 |
% |
|
|
40 |
% |
|
|
12 |
% |
|
|
1 |
% |
|
|
43 |
% |
Operating earnings as a percentage of sales |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
2023 |
|
30 |
% |
|
|
35 |
% |
|
|
31 |
% |
|
|
29 |
% |
|
|
35 |
% |
|
|
31 |
% |
2022 |
|
25 |
% |
|
|
35 |
% |
|
|
24 |
% |
|
|
25 |
% |
|
|
35 |
% |
|
|
24 |
% |
Components of net sales change by geographic region for the Contractor segment were as follows:
|
Three Months |
|
Nine Months |
||||||||||||||||||||
|
Volume and Price |
|
Acquisitions |
|
Currency |
|
Total |
|
Volume and Price |
|
Acquisitions |
|
Currency |
|
Total |
||||||||
|
(5 |
)% |
|
0 |
% |
|
(1 |
)% |
|
(6 |
)% |
|
(1 |
)% |
|
0 |
% |
|
(1 |
)% |
|
(2 |
)% |
EMEA |
(17 |
)% |
|
0 |
% |
|
6 |
% |
|
(11 |
)% |
|
(2 |
)% |
|
0 |
% |
|
1 |
% |
|
(1 |
)% |
|
(9 |
)% |
|
0 |
% |
|
(3 |
)% |
|
(12 |
)% |
|
(8 |
)% |
|
0 |
% |
|
(4 |
)% |
|
(12 |
)% |
Consolidated |
(8 |
)% |
|
0 |
% |
|
1 |
% |
|
(7 |
)% |
|
(2 |
)% |
|
0 |
% |
|
0 |
% |
|
(2 |
)% |
Contractor segment sales decreased for the quarter and year to date as favorable response to new product offerings and improved product availability were unable to offset reduced demand from slower economic activity in worldwide construction markets. Strong realized pricing and lower product costs drove the operating margin rate for this segment 5 percentage points higher for the quarter. Realized pricing offset higher product costs and drove an increase of 4 percentage points in the operating margin rate for the year to date.
Components of net sales change by geographic region for the Industrial segment were as follows:
|
Three Months |
|
Nine Months |
||||||||||||||||||||
|
Volume
|
|
Acquisitions |
|
Currency |
|
Total |
|
Volume
|
|
Acquisitions |
|
Currency |
|
Total |
||||||||
|
1 |
% |
|
0 |
% |
|
1 |
% |
|
2 |
% |
|
8 |
% |
|
0 |
% |
|
0 |
% |
|
8 |
% |
EMEA |
(11 |
)% |
|
0 |
% |
|
7 |
% |
|
(4 |
)% |
|
0 |
% |
|
0 |
% |
|
1 |
% |
|
1 |
% |
|
6 |
% |
|
0 |
% |
|
(3 |
)% |
|
3 |
% |
|
1 |
% |
|
0 |
% |
|
(4 |
)% |
|
(3 |
)% |
Consolidated |
(1 |
)% |
|
0 |
% |
|
2 |
% |
|
1 |
% |
|
3 |
% |
|
0 |
% |
|
0 |
% |
|
3 |
% |
Industrial segment sales increased 1 percent for the quarter as improved project activity in
Components of net sales change by geographic region for the Process segment were as follows:
|
Three Months |
|
Nine Months |
||||||||||||||||||||
|
Volume
|
|
Acquisitions |
|
Currency |
|
Total |
|
Volume
|
|
Acquisitions |
|
Currency |
|
Total |
||||||||
|
12 |
% |
|
0 |
% |
|
0 |
% |
|
12 |
% |
|
17 |
% |
|
1 |
% |
|
0 |
% |
|
18 |
% |
EMEA |
14 |
% |
|
0 |
% |
|
4 |
% |
|
18 |
% |
|
9 |
% |
|
0 |
% |
|
1 |
% |
|
10 |
% |
|
2 |
% |
|
0 |
% |
|
(2 |
)% |
|
0 |
% |
|
4 |
% |
|
0 |
% |
|
(2 |
)% |
|
2 |
% |
Consolidated |
9 |
% |
|
0 |
% |
|
1 |
% |
|
10 |
% |
|
13 |
% |
|
1 |
% |
|
(1 |
)% |
|
13 |
% |
Process segment sales increased double digits for the quarter and year to date, although the rate of growth slowed in the third quarter. The operating margin rate for this segment increased 7 percentage points for both the quarter and year to date from the comparable periods last year primarily due to price realization and expense leverage.
Outlook
"Our results reflect underlying business trends that were in line with our expectations for the year across our businesses," said Sheahan. "Despite lower Contractor segment volumes and uncertain macroeconomic conditions, we remain confident in our ability to deliver on our outlook for the full year of low single-digit growth on an organic, constant currency basis."
Financial Results Adjusted for Comparability
Excluding the impacts of contingent consideration fair value adjustments, impairment charges and 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 operating earnings, adjusted earnings before income taxes, income taxes, effective income tax rates, net earnings and diluted earnings per share follows (in millions except per share amounts):
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
Sep 29,
|
|
Sep 30,
|
|
Sep 29,
|
|
Sep 30,
|
||||||||
Operating earnings, as reported |
$ |
163.2 |
|
|
$ |
143.1 |
|
|
$ |
476.9 |
|
|
$ |
420.2 |
|
Contingent consideration |
|
(8.6 |
) |
|
|
— |
|
|
|
(8.6 |
) |
|
|
— |
|
Impairment |
|
7.8 |
|
|
|
— |
|
|
|
7.8 |
|
|
|
— |
|
Operating earnings, adjusted |
$ |
162.4 |
|
|
$ |
143.1 |
|
|
$ |
476.1 |
|
|
$ |
420.2 |
|
|
|
|
|
|
|
|
|
||||||||
Earnings before income taxes |
$ |
164.3 |
|
|
$ |
142.4 |
|
|
$ |
481.3 |
|
|
$ |
411.7 |
|
Contingent consideration |
|
(8.6 |
) |
|
|
— |
|
|
|
(8.6 |
) |
|
|
— |
|
Impairment |
|
7.8 |
|
|
|
— |
|
|
|
7.8 |
|
|
|
— |
|
Earnings before income taxes, adjusted |
$ |
163.5 |
|
|
$ |
142.4 |
|
|
$ |
480.5 |
|
|
$ |
411.7 |
|
|
|
|
|
|
|
|
|
||||||||
Income taxes, as reported |
$ |
31.2 |
|
|
$ |
26.2 |
|
|
$ |
84.7 |
|
|
$ |
77.3 |
|
Excess tax benefit from option exercises |
|
0.8 |
|
|
|
1.4 |
|
|
|
8.9 |
|
|
|
3.2 |
|
Income taxes, adjusted |
$ |
32.0 |
|
|
$ |
27.6 |
|
|
$ |
93.6 |
|
|
$ |
80.5 |
|
|
|
|
|
|
|
|
|
||||||||
Effective income tax rate |
|
|
|
|
|
|
|
||||||||
As reported |
|
19.0 |
% |
|
|
18.4 |
% |
|
|
17.6 |
% |
|
|
18.8 |
% |
Adjusted |
|
19.6 |
% |
|
|
19.4 |
% |
|
|
19.5 |
% |
|
|
19.6 |
% |
|
|
|
|
|
|
|
|
||||||||
Net Earnings, as reported |
$ |
133.1 |
|
|
$ |
116.2 |
|
|
$ |
396.6 |
|
|
$ |
334.5 |
|
Contingent consideration |
|
(8.6 |
) |
|
|
— |
|
|
|
(8.6 |
) |
|
|
— |
|
Impairment |
|
7.8 |
|
|
|
— |
|
|
|
7.8 |
|
|
|
— |
|
Excess tax benefit from option exercises |
|
(0.8 |
) |
|
|
(1.4 |
) |
|
|
(8.9 |
) |
|
|
(3.2 |
) |
Net Earnings, adjusted |
$ |
131.5 |
|
|
$ |
114.8 |
|
|
$ |
386.9 |
|
|
$ |
331.3 |
|
|
|
|
|
|
|
|
|
||||||||
Weighted Average Diluted Shares |
|
172.8 |
|
|
|
172.8 |
|
|
|
172.3 |
|
|
|
173.4 |
|
Diluted Earnings per Share |
|
|
|
|
|
|
|
||||||||
As reported |
$ |
0.77 |
|
|
$ |
0.67 |
|
|
$ |
2.30 |
|
|
$ |
1.93 |
|
Adjusted |
$ |
0.76 |
|
|
$ |
0.66 |
|
|
$ |
2.24 |
|
|
$ |
1.91 |
|
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;
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 2022 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, October 26, 2023, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s third 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 |
|
Nine Months Ended |
||||||||||||
|
Sep 29,
|
|
Sep 30,
|
|
Sep 29,
|
|
Sep 30,
|
||||||||
Net Sales |
$ |
539,672 |
|
|
$ |
545,644 |
|
|
$ |
1,628,962 |
|
|
$ |
1,588,476 |
|
Cost of products sold |
|
255,148 |
|
|
|
284,556 |
|
|
|
767,883 |
|
|
|
803,853 |
|
Gross Profit |
|
284,524 |
|
|
|
261,088 |
|
|
|
861,079 |
|
|
|
784,623 |
|
Product development |
|
19,817 |
|
|
|
19,704 |
|
|
|
61,582 |
|
|
|
58,749 |
|
Selling, marketing and distribution |
|
60,495 |
|
|
|
61,386 |
|
|
|
194,258 |
|
|
|
186,457 |
|
General and administrative |
|
41,823 |
|
|
|
36,849 |
|
|
|
129,130 |
|
|
|
119,225 |
|
Contingent consideration |
|
(8,600 |
) |
|
|
— |
|
|
|
(8,600 |
) |
|
|
— |
|
Impairment |
|
7,800 |
|
|
|
— |
|
|
|
7,800 |
|
|
|
— |
|
Operating Earnings |
|
163,189 |
|
|
|
143,149 |
|
|
|
476,909 |
|
|
|
420,192 |
|
Interest expense |
|
1,391 |
|
|
|
1,542 |
|
|
|
4,536 |
|
|
|
8,555 |
|
Other (income) expense, net |
|
(2,483 |
) |
|
|
(866 |
) |
|
|
(8,877 |
) |
|
|
(106 |
) |
Earnings Before Income Taxes |
|
164,281 |
|
|
|
142,473 |
|
|
|
481,250 |
|
|
|
411,743 |
|
Income taxes |
|
31,158 |
|
|
|
26,241 |
|
|
|
84,693 |
|
|
|
77,290 |
|
Net Earnings |
$ |
133,123 |
|
|
$ |
116,232 |
|
|
$ |
396,557 |
|
|
$ |
334,453 |
|
Net Earnings per Common Share |
|
|
|
|
|
|
|
||||||||
Basic |
$ |
0.79 |
|
|
$ |
0.69 |
|
|
$ |
2.35 |
|
|
$ |
1.97 |
|
Diluted |
$ |
0.77 |
|
|
$ |
0.67 |
|
|
$ |
2.30 |
|
|
$ |
1.93 |
|
Weighted Average Number of Shares |
|
|
|
|
|
|
|
||||||||
Basic |
|
169,005 |
|
|
|
169,166 |
|
|
|
168,569 |
|
|
|
169,368 |
|
Diluted |
|
172,780 |
|
|
|
172,789 |
|
|
|
172,336 |
|
|
|
173,388 |
|
SEGMENT INFORMATION (Unaudited) |
|||||||||||||||
(In thousands) |
|||||||||||||||
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
Sep 29,
|
|
Sep 30,
|
|
Sep 29,
|
|
Sep 30,
|
||||||||
Net Sales |
|
|
|
|
|
|
|
||||||||
Contractor |
$ |
245,269 |
|
|
$ |
264,086 |
|
|
$ |
746,888 |
|
|
$ |
764,417 |
|
Industrial |
|
157,084 |
|
|
|
156,182 |
|
|
|
470,797 |
|
|
|
459,176 |
|
Process |
|
137,319 |
|
|
|
125,376 |
|
|
|
411,277 |
|
|
|
364,883 |
|
Total |
$ |
539,672 |
|
|
$ |
545,644 |
|
|
$ |
1,628,962 |
|
|
$ |
1,588,476 |
|
Operating Earnings |
|
|
|
|
|
|
|
||||||||
Contractor |
$ |
73,512 |
|
|
$ |
65,123 |
|
|
$ |
216,152 |
|
|
$ |
192,314 |
|
Industrial |
|
54,298 |
|
|
|
53,964 |
|
|
|
162,955 |
|
|
|
161,795 |
|
Process |
|
43,001 |
|
|
|
30,638 |
|
|
|
127,186 |
|
|
|
89,183 |
|
Unallocated corporate (expense) |
|
(8,422 |
) |
|
|
(6,576 |
) |
|
|
(30,184 |
) |
|
|
(23,100 |
) |
Contingent consideration |
|
8,600 |
|
|
|
— |
|
|
|
8,600 |
|
|
|
— |
|
Impairment |
|
(7,800 |
) |
|
|
— |
|
|
|
(7,800 |
) |
|
|
— |
|
Total |
$ |
163,189 |
|
|
$ |
143,149 |
|
|
$ |
476,909 |
|
|
$ |
420,192 |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20231025231919/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's net sales for Q3 2023?
What was the change in net sales compared to last year?
How much did operating earnings and net earnings increase by?
What was the increase in diluted net earnings per common share?
