Financial News

Graco Reports Record Quarterly Sales and Operating Earnings

Graco Inc. (NYSE: GGG) today announced results for the fourth quarter ended December 25, 2020.

Summary

$ in millions except per share amounts

Three Months Ended

Twelve Months Ended

Dec 25,
2020

Dec 27,
2019

%
Change

Dec 25,
2020

Dec 27,
2019

%
Change

Net Sales

$

470.3

$

412.3

14

%

$

1,650.1

$

1,646.0

0

%

Operating Earnings

132.1

104.2

27

%

391.7

424.5

(8

)%

Net Earnings

114.7

84.8

35

%

330.5

343.9

(4

)%

Diluted Net Earnings per Common Share

$

0.66

$

0.49

35

%

$

1.92

$

2.00

(4

)%

Adjusted (non-GAAP): (1)

Net Earnings, adjusted

$

106.0

$

82.0

29

%

$

335.2

$

325.4

3

%

Diluted Net Earnings per Common Share, adjusted

$

0.61

$

0.48

27

%

$

1.95

$

1.90

3

%

(1)

Excludes impacts of impairment, excess tax benefits from stock option exercises and certain non-recurring tax provision adjustments. See Financial Results Adjusted for Comparability below for a reconciliation of adjusted non-GAAP financial measures to GAAP.

  • Sales increased by 14 percent in the quarter, led by double-digit sales growth in the Contractor segment and Asia Pacific region.
  • Gross profit margin rate for the quarter increased due to strong realized pricing, improved sales volume in the Industrial segment and favorable effects of changes in currency translation rates. Unfavorable product and channel mix in the Contractor segment softened the increase in the gross profit margin rate.
  • Operating expense leverage for the quarter remained strong.
  • The effective income tax rate for the quarter decreased 5 percentage points primarily due to increases in excess tax benefits related to stock option exercises.

“Sales in the fourth quarter grew double digits on improving Industrial demand and continued strength in the Contractor segment,” said Patrick J. McHale, Graco’s President and CEO. “While several end markets remain soft, we saw improvements in our spray foam, electronics, battery and systems end markets during the quarter. Improvements in these markets coupled with continued robust sales in our professional paint and home center channels resulted in record quarterly sales. Thanks to the hard work of our employees, suppliers and distributors during a challenging 2020, we were able to stick to our playbook and fully fund our growth strategies.”

Consolidated Results

Sales for the quarter increased 14 percent from the comparable period last year (12 percent at consistent translation rates). Sales increased 15 percent in the Americas, 7 percent in EMEA (1 percent at consistent translation rates) and 22 percent in Asia Pacific (17 percent at consistent translation rates). Sales for the year were comparable to last year. Sales increased 4 percent in the Americas and 1 percent in Asia Pacific and decreased 9 percent in EMEA (10 percent at consistent translation rates). Changes in currency translation rates increased worldwide sales by $9 million for the quarter (2 percentage points) and did not have a significant impact on full-year comparisons. Sales from acquired operations did not have a meaningful impact for the fourth quarter and increased worldwide sales by $18 million (1 percentage point) for the year.

The fourth quarter gross profit margin rate increased from the comparable period last year as strong realized pricing, improved Industrial segment sales volume and favorable effects of changes in currency translation rates offset the impacts of unfavorable product and channel mix within the Contractor segment. For the year, the gross profit margin rate declined slightly as price realization was not enough to offset the impacts of unfavorable product and channel mix (lower high-margin Industrial segment sales combined with growth in lower-margin Contractor segment sales).

Total operating expenses for the quarter increased $7 million (7 percentage points) mostly due to increases in sales and earnings-based expenses and product development spending. Operating expenses for the year included $35 million of non-cash impairment charges related to the third quarter sale of the Company's U.K.-based valve business (Alco). The impact of the impairment on net earnings for the year was $34 million or $0.20 per diluted share. Total operating expenses before impairment charges for the year decreased $7 million (2 percentage points) as reductions in selling expenses offset increases in product development spending.

Other non-operating expenses decreased $1 million for the quarter mostly due to market valuation fluctuations on investments held to fund certain retirement benefits liabilities. For the year, other non-operating expenses were comparable to last year.

The effective income tax rate for the fourth quarter was 11 percent, down 5 percentage points from the comparable period last year, primarily due to increases in excess tax benefits related to stock option exercises. The effective income tax rate for the year was 12 percent, down 3 percentage points compared to last year. The decrease was due primarily to additional foreign tax benefits and excess tax benefits related to stock option exercises partially offset by non-deductible impairment charges.

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

Twelve Months

Industrial

Process

Contractor

Industrial

Process

Contractor

Net Sales (in millions)

$

212.9

$

83.5

$

173.9

$

677.7

$

326.1

$

646.3

Percentage change from last year

Sales

9

%

(6

)%

35

%

(9

)%

(5

)%

17

%

Operating earnings

30

%

(6

)%

44

%

(8

)%

(16

)%

28

%

Operating earnings as a percentage of sales

2020

37

%

22

%

23

%

33

%

20

%

25

%

2019

31

%

22

%

22

%

33

%

22

%

23

%

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

Three Months

Twelve Months

Volume
and Price

Acquisitions

Currency

Total

Volume
and Price

Acquisitions

Currency

Total

Americas

1%

0%

(1)%

0%

(9)%

0%

0%

(9)%

EMEA

2%

0%

6%

8%

(15)%

0%

1%

(14)%

Asia Pacific

23%

0%

6%

29%

(4)%

0%

0%

(4)%

Consolidated

6%

0%

3%

9%

(10)%

0%

1%

(9)%

Recovery in Asia Pacific contributed to Industrial segment sales growth in the fourth quarter. Sales declined for the year as most geographies were impacted by government actions that reduced economic activity. Improved sales volume, strong price realization and lower product costs drove the fourth quarter operating margin rate 6 percentage points higher than last year. Operating margin rate for the year was comparable to last year as price realization and lower product costs offset decreases in sales volume.

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

Three Months

Twelve Months

Volume
and Price

Acquisitions

Currency

Total

Volume
and Price

Acquisitions

Currency

Total

Americas

(6)%

3%

0%

(3)%

(10)%

3%

0%

(7)%

EMEA

(24)%

1%

2%

(21)%

(19)%

5%

0%

(14)%

Asia Pacific

(8)%

3%

3%

(2)%

(2)%

11%

0%

9%

Consolidated

(10)%

3%

1%

(6)%

(10)%

5%

0%

(5)%

Process segment sales decreased for the quarter and year, although the rate of decline slowed in the fourth quarter. Operating earnings as a percentage of sales for the fourth quarter were similar to the comparable period last year as the effects of favorable changes in currency translation rates and the impact of divested operations offset lower sales volume. Operating earnings as a percentage of sales declined 2 percentage points for the year driven by lower volume and unfavorable product and channel mix, partially offset by the impact of divested operations.

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

Three Months

Twelve Months

Volume
and Price

Acquisitions

Currency

Total

Volume
and Price

Acquisitions

Currency

Total

Americas

39%

0%

0%

39%

20%

0%

0%

20%

EMEA

13%

0%

7%

20%

5%

0%

1%

6%

Asia Pacific

40%

0%

5%

45%

14%

0%

(1)%

13%

Consolidated

33%

0%

2%

35%

17%

0%

0%

17%

Contractor segment sales increased in all geographies for the quarter and year. Continued strength in construction and home improvement markets drove the increase. Operating margin rate for the quarter improved slightly from the comparable period last year as increased sales volume was mostly offset by unfavorable product and channel mix and higher factory spending. Increased sales volume and expense leverage contributed to the increase in the operating margin rate for the year.

Outlook

“Heading into 2021, we expect challenging end market conditions to remain in place for at least the first half in many of our end markets as lockdowns continue,” said McHale. “Our outlook for the Contractor segment remains positive as favorable conditions continue, and demand for our products is solid across major end markets and product categories.”

Financial Results Adjusted for Comparability

Excluding the impacts of impairment charges, excess tax benefits related to stock option exercises and certain tax provision adjustments presents a more consistent basis for comparison of financial results. A calculation of the non-GAAP measurements of adjusted operating earnings, 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

Twelve Months Ended

Dec 25,
2020

Dec 27,
2019

Dec 25,
2020

Dec 27,
2019

Operating earnings, as reported

$

132.1

$

104.2

$

391.7

$

424.5

Impairment

35.2

Operating earnings, adjusted

$

132.1

$

104.2

$

426.9

$

424.5

Earnings before income taxes, as reported

$

129.5

$

100.5

$

374.7

$

405.9

Impairment

35.2

Earnings before income taxes, adjusted

$

129.5

$

100.5

$

409.9

$

405.9

Income taxes, as reported

$

14.8

$

15.7

$

44.2

$

62.0

Impairment tax benefit

1.2

Excess tax benefit from option exercises

8.7

2.3

21.3

10.4

Other non-recurring tax benefit

0.5

8.0

8.1

Income taxes, adjusted

$

23.5

$

18.5

$

74.7

$

80.5

Effective income tax rate

As reported

11.4

%

15.6

%

11.8

%

15.3

%

Adjusted

18.1

%

18.5

%

18.2

%

19.8

%

Net Earnings, as reported

$

114.7

$

84.8

$

330.5

$

343.9

Impairment, net

34.0

Excess tax benefit from option exercises

(8.7

)

(2.3

)

(21.3

)

(10.4

)

Other non-recurring tax benefit

(0.5

)

(8.0

)

(8.1

)

Net Earnings, adjusted

$

106.0

$

82.0

$

335.2

$

325.4

Weighted Average Diluted Shares

173.2

171.8

172.0

171.6

Diluted Earnings per Share

As reported

$

0.66

$

0.49

$

1.92

$

2.00

Adjusted

$

0.61

$

0.48

$

1.95

$

1.90

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; economic conditions in the United States and other major world economies; our Company’s growth strategies, which include making acquisitions, investing in new products, expanding geographically and targeting new industries; changes in currency translation rates; the ability to meet our customers’ needs and changes in product demand; supply interruptions or delays; security breaches; new entrants who copy our products or infringe on our intellectual property; risks incident to conducting business internationally; catastrophic events; changes in laws and regulations; compliance with anti-corruption and trade laws; changes in tax rates or the adoption of new tax legislation; 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; our ability to attract, develop and retain qualified personnel; the possibility of decline in purchases from a few large customers of the Contractor segment; and variations in activity in the construction, automotive, mining and oil and natural gas industries. Please refer to Item 1A of our Annual Report on Form 10-K for fiscal year 2019 (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 Tuesday, January 26, 2021, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s fourth 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.

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 Tuesday, January 26, 2021, by dialing 855-859-2056, Conference ID # 5162659, if calling within the U.S. or Canada. The dial-in number for international participants is 404-537-3406, with the same Conference ID #. The replay by telephone will be available through 1 p.m. ET on Tuesday, February 2, 2021.

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

Twelve Months Ended

Dec 25,
2020

Dec 27,
2019

Dec 25,
2020

Dec 27,
2019

Net Sales

$

470,340

$

412,292

$

1,650,115

$

1,646,045

Cost of products sold

225,516

202,911

795,178

786,289

Gross Profit

244,824

209,381

854,937

859,756

Product development

19,450

16,941

72,194

67,557

Selling, marketing and distribution

60,043

57,529

220,271

234,325

General and administrative

33,203

30,742

135,525

133,418

Impairment

35,229

Operating Earnings

132,128

104,169

391,718

424,456

Interest expense

2,572

2,526

11,280

13,110

Other expense (income), net

49

1,109

5,787

5,469

Earnings Before Income Taxes

129,507

100,534

374,651

405,877

Income taxes

14,816

15,699

44,195

62,024

Net Earnings

$

114,691

$

84,835

$

330,456

$

343,853

Net Earnings per Common Share

Basic

$

0.68

$

0.51

$

1.97

$

2.06

Diluted

$

0.66

$

0.49

$

1.92

$

2.00

Weighted Average Number of Shares

Basic

168,104

166,911

167,462

166,515

Diluted

173,187

171,814

172,008

171,624

 

SEGMENT INFORMATION (Unaudited)

(In thousands)

 

Three Months Ended

Twelve Months Ended

Dec 25,
2020

Dec 27,
2019

Dec 25,
2020

Dec 27,
2019

Net Sales

Industrial

$

212,904

$

194,773

$

677,680

$

747,396

Process

83,495

88,882

326,105

344,930

Contractor

173,941

128,637

646,330

553,719

Total

$

470,340

$

412,292

$

1,650,115

$

1,646,045

Operating Earnings

Industrial

$

78,565

$

60,562

$

226,575

$

247,216

Process

18,528

19,781

64,498

76,367

Contractor

39,969

27,684

164,549

128,282

Unallocated corporate (expense)

(4,934

)

(3,858

)

(28,675

)

(27,409

)

Impairment

(35,229

)

Total

$

132,128

$

104,169

$

391,718

$

424,456

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands)

 

Dec 25,
2020

Dec 27,
2019

ASSETS

Current Assets

Cash and cash equivalents

$

378,909

$

220,973

Accounts receivable, less allowances of $4,400 and $5,300

314,946

267,345

Inventories

285,704

273,233

Other current assets

44,242

29,917

Total current assets

1,023,801

791,468

Property, Plant and Equipment, net

350,750

325,546

Goodwill

347,603

307,663

Other Intangible Assets, net

160,669

162,623

Operating Lease Assets

37,807

29,891

Deferred Income Taxes

25,828

39,327

Other Assets

41,670

35,692

Total Assets

$

1,988,128

$

1,692,210

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities

Notes payable to banks

$

22,183

$

7,732

Trade accounts payable

58,305

54,117

Salaries and incentives

52,005

51,301

Dividends payable

31,636

29,235

Other current liabilities

157,260

142,937

Total current liabilities

321,389

285,322

Long-term Debt

150,000

164,298

Retirement Benefits and Deferred Compensation

184,747

182,707

Operating Lease Liabilities

29,224

24,176

Deferred Income Taxes

10,264

10,776

Other Non-current Liabilities

8,600

Shareholders’ Equity

Common stock

168,568

167,287

Additional paid-in-capital

671,206

578,440

Retained earnings

568,295

448,991

Accumulated other comprehensive income (loss)

(124,165

)

(169,787

)

Total shareholders’ equity

1,283,904

1,024,931

Total Liabilities and Shareholders’ Equity

$

1,988,128

$

1,692,210

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

 

Year Ended

Dec 25,
2020

Dec 27,
2019

Cash Flows From Operating Activities

Net Earnings

$

330,456

$

343,853

Adjustments to reconcile net earnings to net cash
provided by operating activities

Depreciation and amortization

55,329

48,911

Deferred income taxes

10,747

(6,411

)

Share-based compensation

25,153

26,669

Impairment

35,229

Change in

Accounts receivable

(43,122

)

8,934

Inventories

(13,086

)

12,435

Trade accounts payable

6,820

(539

)

Salaries and incentives

(2,622

)

(14,069

)

Retirement benefits and deferred compensation

(6,703

)

13,264

Other accrued liabilities

(3,772

)

(11,510

)

Other

(394

)

(2,803

)

Net cash provided by operating activities

394,035

418,734

Cash Flows From Investing Activities

Property, plant and equipment additions

(71,338

)

(127,953

)

Acquisition of businesses, net of cash acquired

(27,557

)

(26,577

)

Other

(143

)

(939

)

Net cash provided by (used in) investing activities

(99,038

)

(155,469

)

Cash Flows From Financing Activities

Borrowings (payments) on short-term lines of credit, net

(1,986

)

(3,341

)

Borrowings on long-term lines of credit

250,000

105,423

Payments on long-term debt and lines of credit

(250,000

)

(207,191

)

Common stock issued

83,438

48,250

Common stock repurchased

(102,143

)

(9,482

)

Taxes paid related to net share settlement of equity awards

(1,797

)

(1,268

)

Cash dividends paid

(116,983

)

(106,443

)

Net cash provided by (used in) financing activities

(139,471

)

(174,052

)

Effect of exchange rate changes on cash

2,410

(358

)

Net increase (decrease) in cash and cash equivalents

157,936

88,855

Cash and Cash Equivalents

Beginning of year

220,973

132,118

End of year

$

378,909

$

220,973

Contacts:

Financial Contact: Mark Sheahan, 612-623-6656
Media Contact: Charlotte Boyd, 612-623-6153
Charlotte_M_Boyd@graco.com

Data & News supplied by www.cloudquote.io
Stock quotes supplied by Barchart
Quotes delayed at least 20 minutes.
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.

Use the myMotherLode.com Keyword Search to go straight to a specific page

Popular Pages

  • Local News
  • US News
  • Weather
  • State News
  • Events
  • Traffic
  • Sports
  • Dining Guide
  • Real Estate
  • Classifieds
  • Financial News
  • Fire Info
Feedback