Graco Inc. (NYSE: GGG) today announced results for the quarter
and six months ended June 28, 2013.
|
Summary
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$ in millions except per share amounts
|
|
|
Thirteen Weeks Ended
|
|
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Twenty-six Weeks Ended
|
|
|
Jun 28,
|
|
Jun 29,
|
|
%
|
|
|
Jun 28,
|
|
Jun 29,
|
|
%
|
|
|
2013
|
|
2012
|
|
Change
|
|
|
2013
|
|
2012
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
Net Sales
|
|
$
|
286.0
|
|
$
|
268.2
|
|
7
|
%
|
|
|
$
|
555.1
|
|
$
|
502.3
|
|
11
|
%
|
Net Earnings
|
|
|
57.8
|
|
|
34.4
|
|
68
|
%
|
|
|
|
110.0
|
|
|
69.7
|
|
58
|
%
|
Diluted Net Earnings per Common Share
|
|
$
|
0.92
|
|
$
|
0.56
|
|
64
|
%
|
|
|
$
|
1.76
|
|
$
|
1.13
|
|
56
|
%
|
|
|
|
|
|
|
|
|
|
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-
Contractor segment sales drove the 7 percent sales increase for the
quarter.
-
Year-to-date sales increased 11 percent, driven by a 6 percentage
point increase from the first quarter impact of the April 2012
acquisition of the Powder Finishing operations and strong Contractor
segment sales.
-
Gross margin rates remained strong at 55½ percent for the quarter and
year-to-date, up from 52 percent for the second quarter last year,
which included non-recurring inventory charges related to the
acquisition of Powder Finishing.
-
All segments generated double-digit percentage growth in operating
earnings for the quarter.
-
Operating expenses included acquisition and divestiture costs of $1
million, a decrease from the prior year of $7 million for the quarter
and $10 million for the year-to-date.
-
Other expense (income) included dividend income of $11 million for the
quarter and $15 million for the year-to-date, up from $4 million for
the quarter and year-to-date last year, received from the Liquid
Finishing businesses held as a cost-method investment.
-
Changes in currency translation rates did not have a significant
effect on operating results.
-
Cash flow from operations remained strong, with $91 million applied to
reduction of long-term debt since the end of 2012.
"Thanks to the great efforts and dedication of our employees and
distributors around the world, Graco achieved new quarterly records in
the second quarter for both sales and earnings," said Patrick J. McHale,
Graco's President and Chief Executive Officer. "Sales grew at a
double-digit pace in the Americas, driven by 28 percent growth in our
Contractor segment, which benefitted from an initial stocking of
expanded product offerings in the home center channel and the ongoing
recovery in the U.S. housing market. The Industrial segment in the
Americas returned to growth in the second quarter, reflecting an
increase in demand that was broad based throughout product categories.
Macroeconomic conditions remained a headwind in the second quarter for
regions outside of the Americas, however. In EMEA, sales grew slightly
in the second quarter, aided by channel expansion in our Lubrication
segment and stronger demand for Contractor segment products in emerging
markets. In our Asia Pacific region, sales declined 6 percent in the
second quarter, reflecting ongoing weakness in mining and general
industrial applications."
Consolidated Results
Sales for the quarter increased 7 percent, including increases of 14
percent in the Americas and 2 percent in EMEA. Sales decreased 6 percent
in Asia Pacific. Year-to-date sales increased 11 percent, including
increases of 12 percent in the Americas, 13 percent in EMEA and 4
percent in Asia Pacific. The first quarter impact of the Powder
Finishing operations acquired in April 2012 contributed approximately 6
percentage points of the total year-to-date growth and accounted for all
of the growth in EMEA and Asia Pacific.
Gross profit margin, expressed as a percentage of sales, was 55½ percent
for both the quarter and year-to date, up from 52 percent and 54 percent
for the quarter and year-to-date last year, respectively. Non-recurring
purchase accounting effects totaling $7 million related to inventory
reduced last year’s gross margin rate by approximately 3 percentage
points for the quarter and 1½ points year-to-date.
Total operating expenses for the quarter decreased by $4 million,
including a $7 million drop in acquisition and divestiture costs.
Year-to-date operating expenses were $1 million higher than last year,
with higher expenses from acquired operations and other volume-related
increases mostly offset by a $10 million decrease in acquisition and
divestiture costs.
Other expense (income) included dividends of $11 million for the quarter
and $15 million year-to-date received from the Liquid Finishing
businesses that are held separate from the Company’s other businesses.
The Company received the first of such dividends in the second quarter
of 2012, in the amount of $4 million.
The effective income tax rate of 29 percent for the quarter and the
year-to-date rate of 28 percent were lower than the comparable periods
last year. This year’s rate includes the impact of the federal R&D
credit that was renewed in the first quarter, effective retroactive to
the beginning of 2012. There was no R&D credit recognized in 2012. The
effective rate in 2013 also reflects the effect of higher after-tax
dividend income received from the Liquid Finishing businesses held
separate.
|
Segment Results
|
|
Certain measurements of segment operations are summarized below:
|
|
|
|
Thirteen Weeks
|
|
|
Twenty-six Weeks
|
|
|
Industrial
|
|
Contractor
|
|
Lubrication
|
|
|
Industrial
|
|
Contractor
|
|
Lubrication
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (in millions)
|
|
$
|
159.7
|
|
|
$
|
98.5
|
|
|
$
|
27.9
|
|
|
|
$
|
323.8
|
|
|
$
|
176.1
|
|
|
$
|
55.1
|
|
Percentage change from last year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
1
|
%
|
|
|
20
|
%
|
|
|
(0
|
)%
|
|
|
|
11
|
%
|
|
|
14
|
%
|
|
|
(1
|
)%
|
Operating earnings
|
|
|
19
|
%
|
|
|
36
|
%
|
|
|
20
|
%
|
|
|
|
17
|
%
|
|
|
34
|
%
|
|
|
1
|
%
|
Operating earnings as a percentage of net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
32
|
%
|
|
|
25
|
%
|
|
|
24
|
%
|
|
|
|
33
|
%
|
|
|
23
|
%
|
|
|
21
|
%
|
2012
|
|
|
27
|
%
|
|
|
22
|
%
|
|
|
20
|
%
|
|
|
|
31
|
%
|
|
|
20
|
%
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Industrial segment sales for the quarter increased 1 percent, with a 7
percent increase in the Americas mostly offset by a decrease in Asia
Pacific. Year-to-date sales increased 11 percent, with 10 percentage
points of the increase from Powder Finishing operations acquired in
April 2012. Operating margin rate for the Industrial segment improved
compared to last year, which included the effects of purchase accounting
related to inventory that reduced the rate for the second quarter of
2012 by approximately 4 percentage points.
Contractor segment sales for the quarter increased 20 percent, including
increases of 28 percent in the Americas, 5 percent in EMEA and 2 percent
in Asia Pacific. Year-to-date sales were up 14 percent, driven by
increases in the Americas. Higher sales volume, improved gross margin
rate and expense leverage led to higher operating margin rates in the
Contractor segment.
Lubrication segment sales were flat for the quarter and down 1 percent
year-to-date. Increases in the Americas and EMEA were offset by a
decrease in Asia Pacific, where several large industrial lubrication
transactions in 2012 were not repeated in 2013. Improved manufacturing
performance and limited spending increases led to higher operating
margin rates in this segment.
Acquisition in 2012
On April 2, 2012, the Company completed the purchase of the finishing
businesses of Illinois Tool Works Inc. The acquisition included Powder
Finishing and Liquid Finishing equipment operations, technologies and
brands. Results of the Powder Finishing business have been included in
the Industrial segment since the date of acquisition.
Pursuant to a March 2012 order, the Liquid Finishing businesses were to
be held separate from the rest of Graco’s businesses while the United
States Federal Trade Commission (“FTC”) considered a settlement with
Graco and determined which portions of the Liquid Finishing business
Graco must divest.
In May 2012, the FTC issued a proposed decision and order which requires
Graco to sell the Liquid Finishing business assets, including certain
business activities related to the development, manufacture, and sale of
products under the Binks®, DeVilbiss®, Ransburg® and BGK® brand names,
no later than 180 days from the date the order becomes final. The FTC
has not yet issued its final decision and order.
The Company has retained the services of an investment bank to help it
market the Liquid Finishing businesses and identify potential buyers.
While it seeks a buyer, Graco must continue to hold the Liquid Finishing
business assets separate from its other businesses and maintain them as
viable and competitive.
The Company does not control the Liquid Finishing businesses, nor is it
able to exert influence over those businesses. Consequently, the
Company’s investment in the shares of the Liquid Finishing businesses
has been reflected as a cost-method investment, and its financial
results have not been consolidated with those of the Company. Income is
recognized based on dividends received from current earnings and is
included in other income.
The Liquid Finishing businesses generated sales of $71 million and
EBITDA of $16 million in the second quarter.
Outlook
"We are well positioned for the remainder of the year and believe that
our strategies will deliver full-year sales growth in every region,"
said McHale. "While macroeconomic conditions in EMEA and Asia Pacific
aren't expected to improve, comparables to the prior year are somewhat
easier in these regions in the second half of 2013. When combined with
our strategic initiatives, we continue to expect modest full-year growth
from the EMEA and Asia Pacific regions. In the U.S., the continued
housing recovery should result in a sustained tailwind."
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,
our Form 10-Qs and Form 8-Ks, and other disclosures, including our 2012
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: changes in laws and regulations; economic conditions
in the United States and other major world economies; whether we are
able to locate, complete and effectively integrate acquisitions; whether
we are able to effectively and timely complete a divestiture of the
acquired Liquid Finishing businesses, which has not been completed and
remains subject to FTC approval; risks incident to conducting business
internationally, including currency fluctuations and political
instability; supply interruptions or delays; the ability to meet our
customers’ needs, and changes in product demand; new entrants who copy
our products or infringe on our intellectual property; results of and
costs associated with, litigation, administrative proceedings and
regulatory reviews incident to our business; compliance with
anti-corruption laws; the possibility of decline in purchases from few
large customers of the Contractor segment; fluctuations in new
construction and remodeling activity; natural disasters; and security
breaches. Please refer to Item 1A of our Annual Report on Form 10-K for
fiscal year 2012 (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/ir
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 25,
2013, at 11:00 a.m. ET, 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/ir.
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 2:00 p.m. ET on July 25, 2013, by dialing
800-406-7325, Conference ID #4627991, if calling within the U.S. or
Canada. The dial-in number for international participants is
303-590-3030, with the same Conference ID #. The replay by telephone
will be available through July 28, 2013.
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 coating 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/ir.
|
|
GRACO INC. AND SUBSIDIARIES
|
Consolidated Statement of Earnings (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-six Weeks Ended
|
(in thousands, except per share amounts)
|
|
|
Jun 28,
|
|
|
Jun 29,
|
|
|
Jun 28,
|
|
|
Jun 29,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Net Sales
|
|
|
$
|
286,020
|
|
|
|
$
|
268,184
|
|
|
|
$
|
555,066
|
|
|
|
$
|
502,306
|
|
Cost of products sold
|
|
|
|
127,281
|
|
|
|
|
128,654
|
|
|
|
|
245,683
|
|
|
|
|
230,597
|
|
Gross Profit
|
|
|
|
158,739
|
|
|
|
|
139,530
|
|
|
|
|
309,383
|
|
|
|
|
271,709
|
|
Product development
|
|
|
|
12,467
|
|
|
|
|
12,502
|
|
|
|
|
24,888
|
|
|
|
|
24,140
|
|
Selling, marketing and distribution
|
|
|
|
44,556
|
|
|
|
|
42,547
|
|
|
|
|
87,910
|
|
|
|
|
80,573
|
|
General and administrative
|
|
|
|
26,499
|
|
|
|
|
32,006
|
|
|
|
|
49,871
|
|
|
|
|
56,552
|
|
Operating Earnings
|
|
|
|
75,217
|
|
|
|
|
52,475
|
|
|
|
|
146,714
|
|
|
|
|
110,444
|
|
Interest expense
|
|
|
|
4,625
|
|
|
|
|
5,359
|
|
|
|
|
9,387
|
|
|
|
|
9,048
|
|
Other expense (income), net
|
|
|
|
(10,851
|
)
|
|
|
|
(3,236
|
)
|
|
|
|
(15,246
|
)
|
|
|
|
(2,937
|
)
|
Earnings Before Income Taxes
|
|
|
|
81,443
|
|
|
|
|
50,352
|
|
|
|
|
152,573
|
|
|
|
|
104,333
|
|
Income taxes
|
|
|
|
23,600
|
|
|
|
|
16,000
|
|
|
|
|
42,600
|
|
|
|
|
34,600
|
|
Net Earnings
|
|
|
$
|
57,843
|
|
|
|
$
|
34,352
|
|
|
|
$
|
109,973
|
|
|
|
$
|
69,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.94
|
|
|
|
$
|
0.57
|
|
|
|
$
|
1.80
|
|
|
|
$
|
1.16
|
|
Diluted
|
|
|
$
|
0.92
|
|
|
|
$
|
0.56
|
|
|
|
$
|
1.76
|
|
|
|
$
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
61,371
|
|
|
|
|
60,484
|
|
|
|
|
61,166
|
|
|
|
|
60,268
|
|
Diluted
|
|
|
|
62,841
|
|
|
|
|
61,803
|
|
|
|
|
62,624
|
|
|
|
|
61,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-six Weeks Ended
|
|
|
|
Jun 28,
|
|
|
Jun 29,
|
|
|
Jun 28,
|
|
|
Jun 29,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
|
$
|
159,671
|
|
|
|
$
|
158,220
|
|
|
|
$
|
323,846
|
|
|
|
$
|
292,323
|
|
Contractor
|
|
|
|
98,498
|
|
|
|
|
82,106
|
|
|
|
|
176,126
|
|
|
|
|
154,092
|
|
Lubrication
|
|
|
|
27,851
|
|
|
|
|
27,858
|
|
|
|
|
55,094
|
|
|
|
|
55,891
|
|
Total
|
|
|
$
|
286,020
|
|
|
|
$
|
268,184
|
|
|
|
$
|
555,066
|
|
|
|
$
|
502,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
|
$
|
51,530
|
|
|
|
$
|
43,171
|
|
|
|
$
|
106,749
|
|
|
|
$
|
91,484
|
|
Contractor
|
|
|
|
24,479
|
|
|
|
|
17,965
|
|
|
|
|
40,911
|
|
|
|
|
30,504
|
|
Lubrication
|
|
|
|
6,647
|
|
|
|
|
5,543
|
|
|
|
|
11,788
|
|
|
|
|
11,632
|
|
Unallocated corporate (expense)
|
|
|
|
(7,439
|
)
|
|
|
|
(14,204
|
)
|
|
|
|
(12,734
|
)
|
|
|
|
(23,176
|
)
|
Total
|
|
|
$
|
75,217
|
|
|
|
$
|
52,475
|
|
|
|
$
|
146,714
|
|
|
|
$
|
110,444
|
|
|
All figures are subject to audit and adjustment at the end of the fiscal
year.
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/ir.
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