Graco Inc. (NYSE: GGG) today announced results for the quarter
and nine months ended September 27, 2013.
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Summary
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$ in millions except per share amounts
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Thirteen Weeks Ended
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Thirty-nine Weeks Ended
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Sep 27,
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Sep 28,
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%
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Sep 27,
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Sep 28,
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%
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2013
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2012
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Change
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2013
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2012
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Change
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Net Sales
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$
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277.0
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$
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256.5
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8
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%
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$
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832.1
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$
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758.8
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10
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%
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Net Earnings
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56.1
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37.1
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51
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%
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166.1
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106.9
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55
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%
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Diluted Net Earnings per Common Share
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$
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0.89
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$
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0.60
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48
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%
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$
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2.65
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$
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1.73
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53
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%
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-
Sales for the quarter increased 8 percent over last year, driven by a
24 percent increase in the Contractor segment, along with modest
increases in Industrial and Lubrication. Year-to-date sales increased
10 percent, including 4 percentage points from the first quarter
impact of the Powder Finishing operations (acquired in April 2012) and
strong Contractor segment sales.
-
Gross margin rate for the quarter was consistent with last year’s
third quarter. Year-to-date gross margin rate was one percentage point
higher than last year, which included non-recurring inventory charges
in the second quarter related to the acquisition of Powder Finishing.
-
Acquisition and divestiture costs for the quarter decreased by $3
million. Year-to-date operating expenses included acquisition and
divestiture costs of $1 million, a decrease of $14 million compared to
the comparable period last year.
-
Other expense (income) included dividend income received from the
Liquid Finishing businesses held as a cost-method investment.
Dividends were $9 million for the quarter, up from $4 million last
year and $24 million year-to-date, up from $8 million last year.
-
Lower effective income tax rates in 2013 reflected the effects of
higher after-tax dividend income, the renewal of the federal R&D
credit, additional benefit from business credits and deductions and
foreign earnings taxed at lower rates than in the United States.
-
Changes in currency translation rates did not have a significant
effect on consolidated operating results. Favorable effects of rate
changes in EMEA were offset by unfavorable effects in Asia Pacific.
-
Cash flow from operations remained strong through the first nine
months of 2013, with $152 million applied to reduction of long-term
debt and $74 million returned to investors through dividends and
Company stock repurchases.
"This was the ninth consecutive quarter Graco posted sales that set a
new quarterly record, an achievement that reflects the commitment of our
employees and distributors to executing our strategic growth
initiatives," said Patrick J. McHale, Graco's President and Chief
Executive Officer. "The Company's rates of growth throughout the world
remained diverged in the third quarter of 2013, with strong
year-over-year growth in the Americas, moderate growth in EMEA and a
sales decline in Asia Pacific. Our overall sales growth for the quarter
was strong, as we continue to benefit from the U.S. housing market
recovery."
Consolidated Results
Sales for the quarter increased 8 percent, including increases of 15
percent in the Americas and 8 percent in EMEA (4 percent at consistent
translation rates). Sales for the quarter decreased 9 percent in Asia
Pacific (6 percent at consistent translation rates). Year-to-date sales
increased 10 percent, including increases of 13 percent in the Americas
and 11 percent in EMEA (9 percent at consistent translation rates).
Year-to-date sales were flat in Asia Pacific (up 2 percent at consistent
translation rates). The first quarter impact of the Powder Finishing
operations acquired in April 2012 contributed approximately 4 percentage
points of the total year-to-date growth and accounted for most of the
growth in EMEA (at consistent translation rates).
Gross profit margin, expressed as a percentage of sales, was 54½ percent
for the quarter, consistent with the comparable period last year.
Year-to-date gross profit margin rate was 55 percent, up 1 percentage
point from last year. Non-recurring inventory-related purchase
accounting effects totaling $7 million reduced last year’s year-to-date
gross margin rate by approximately 1 percentage point.
Total operating expenses for the quarter and year-to-date were slightly
lower than the comparable periods last year. Volume-related increases in
selling, marketing and distribution expenses were more than offset by
decreases in general and administrative expenses, including acquisition
and divestiture cost decreases of $3 million for the quarter and $14
million year-to-date.
Other expense (income) included dividends received from the Liquid
Finishing businesses that are held separate from the Company’s other
businesses. Such dividends totaled $9 million for the quarter and $24
million year-to-date, up from $4 million for the quarter and $8 million
year-to-date received in the comparable periods last year.
The effective income tax rates of 24 percent for the quarter and 27
percent year-to-date were lower than the comparable periods last year.
This year’s rates included the impact of the federal R&D credit that was
renewed in the first quarter, effective retroactive to the beginning of
2012. There was no R&D credit recognized in 2012. The effective rates in
2013 also reflected the effect of higher after-tax dividend income
received from the Liquid Finishing businesses held separate, and the
effect of more foreign earnings that are taxed at lower rates than in
the United States. The effective rate for the quarter also included the
impact of additional benefit from U.S. business credits and deductions.
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Segment Results
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Certain measurements of segment operations are summarized below:
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Thirteen Weeks
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Thirty-nine Weeks
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Industrial
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Contractor
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Lubrication
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Industrial
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Contractor
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Lubrication
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Net sales (in millions)
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$
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156.7
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$
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92.9
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$
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27.4
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$
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480.5
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$
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269.1
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$
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82.5
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Percentage change from last year
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Sales
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1
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%
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24
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%
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|
|
2
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%
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|
|
7
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%
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|
|
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18
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%
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(0
|
)%
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Operating earnings
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5
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%
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|
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|
67
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%
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3
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%
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|
|
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13
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%
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44
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%
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2
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%
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Operating earnings as a percentage of net sales
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2013
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32
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%
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|
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|
23
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%
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|
|
|
20
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%
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|
|
33
|
%
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|
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|
23
|
%
|
|
|
|
21
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%
|
2012
|
|
|
|
30
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%
|
|
|
|
17
|
%
|
|
|
|
20
|
%
|
|
|
|
31
|
%
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|
|
|
19
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%
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|
|
|
21
|
%
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Industrial segment sales for the quarter increased 1 percent, with
increases of 3 percent in the Americas and 10 percent in EMEA (6 percent
at consistent translation rates), mostly offset by an 11 percent
decrease in Asia Pacific (9 percent at consistent translation rates).
Year-to-date sales increased 7 percent, mostly from Powder Finishing
operations acquired in April 2012. Operating margin rate for the
Industrial segment increased compared to last year, driven by improved
gross margin rates. The effects of purchase accounting related to
inventory reduced the 2012 year-to-date operating margin rate by
approximately 2 percentage points.
Contractor segment sales for the quarter increased 24 percent, including
increases of 38 percent in the Americas and 4 percent in EMEA (flat at
consistent translation rates) and a decrease of 8 percent in Asia
Pacific. Year-to-date sales were up 18 percent, driven by increases in
the Americas. Higher sales volume and expense leverage led to higher
operating margin rates in the Contractor segment.
Lubrication segment sales for the quarter increased 2 percent, mostly
from increases in Asia Pacific. Year-to-date sales were flat, with
increases in Europe offset by decreases in Asia Pacific. Operating
margin rates were steady 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 $76 million and
EBITDA of $16 million in the third quarter.
Outlook
"We expect to achieve growth in every region in the fourth quarter of
2013," said McHale. "The housing recovery and a marginally favorable
economic environment in the U.S. should continue to provide a tailwind
for growth in our Contractor and Industrial segments in the Americas. We
don't see a catalyst to advance the weak macroeconomic environments in
Asia Pacific or EMEA in the near term, but we expect modest growth in
the fourth quarter. As we finish out 2013 and look toward 2014, Graco's
global team remains focused on our strategic growth initiatives of
expanding our distribution channels, developing innovative new products,
conversion of end users from manual painting techniques to using spray
equipment, and continuing our efforts to expand into adjacent new
markets."
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, October
24, 2013, at 11:00 a.m. ET, to discuss Graco’s third 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 October 24, 2013, by dialing
800-406-7325, Conference ID #4643781, 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 October 27, 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)
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Thirteen Weeks Ended
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Thirty-nine Weeks Ended
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(in thousands, except per share amounts)
|
|
|
Sep 27,
|
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|
Sep 28,
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Net Sales
|
|
|
$
|
277,035
|
|
|
|
$
|
256,472
|
|
|
|
$
|
832,101
|
|
|
|
$
|
758,778
|
|
Cost of products sold
|
|
|
|
126,162
|
|
|
|
|
116,539
|
|
|
|
|
371,845
|
|
|
|
|
347,136
|
|
Gross Profit
|
|
|
|
150,873
|
|
|
|
|
139,933
|
|
|
|
|
460,256
|
|
|
|
|
411,642
|
|
Product development
|
|
|
|
12,508
|
|
|
|
|
12,485
|
|
|
|
|
37,396
|
|
|
|
|
36,625
|
|
Selling, marketing and distribution
|
|
|
|
44,297
|
|
|
|
|
41,230
|
|
|
|
|
132,207
|
|
|
|
|
121,803
|
|
General and administrative
|
|
|
|
24,342
|
|
|
|
|
29,887
|
|
|
|
|
74,213
|
|
|
|
|
86,439
|
|
Operating Earnings
|
|
|
|
69,726
|
|
|
|
|
56,331
|
|
|
|
|
216,440
|
|
|
|
|
166,775
|
|
Interest expense
|
|
|
|
4,450
|
|
|
|
|
5,233
|
|
|
|
|
13,837
|
|
|
|
|
14,281
|
|
Other expense (income), net
|
|
|
|
(8,425
|
)
|
|
|
|
(3,233
|
)
|
|
|
|
(23,671
|
)
|
|
|
|
(6,170
|
)
|
Earnings Before Income Taxes
|
|
|
|
73,701
|
|
|
|
|
54,331
|
|
|
|
|
226,274
|
|
|
|
|
158,664
|
|
Income taxes
|
|
|
|
17,600
|
|
|
|
|
17,200
|
|
|
|
|
60,200
|
|
|
|
|
51,800
|
|
Net Earnings
|
|
|
$
|
56,101
|
|
|
|
$
|
37,131
|
|
|
|
$
|
166,074
|
|
|
|
$
|
106,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.91
|
|
|
|
$
|
0.61
|
|
|
|
$
|
2.71
|
|
|
|
$
|
1.77
|
|
Diluted
|
|
|
$
|
0.89
|
|
|
|
$
|
0.60
|
|
|
|
$
|
2.65
|
|
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
61,333
|
|
|
|
|
60,570
|
|
|
|
|
61,222
|
|
|
|
|
60,369
|
|
Diluted
|
|
|
|
62,996
|
|
|
|
|
61,778
|
|
|
|
|
62,748
|
|
|
|
|
61,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine Weeks Ended
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
|
$
|
156,654
|
|
|
|
$
|
154,704
|
|
|
|
$
|
480,500
|
|
|
|
$
|
447,027
|
|
Contractor
|
|
|
|
92,942
|
|
|
|
|
74,851
|
|
|
|
|
269,068
|
|
|
|
|
228,943
|
|
Lubrication
|
|
|
|
27,439
|
|
|
|
|
26,917
|
|
|
|
|
82,533
|
|
|
|
|
82,808
|
|
Total
|
|
|
$
|
277,035
|
|
|
|
$
|
256,472
|
|
|
|
$
|
832,101
|
|
|
|
$
|
758,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
|
$
|
49,429
|
|
|
|
$
|
47,162
|
|
|
|
$
|
156,178
|
|
|
|
$
|
138,646
|
|
Contractor
|
|
|
|
21,459
|
|
|
|
|
12,835
|
|
|
|
|
62,370
|
|
|
|
|
43,339
|
|
Lubrication
|
|
|
|
5,497
|
|
|
|
|
5,356
|
|
|
|
|
17,285
|
|
|
|
|
16,988
|
|
Unallocated corporate (expense)
|
|
|
|
(6,659
|
)
|
|
|
|
(9,022
|
)
|
|
|
|
(19,393
|
)
|
|
|
|
(32,198
|
)
|
Total
|
|
|
$
|
69,726
|
|
|
|
$
|
56,331
|
|
|
|
$
|
216,440
|
|
|
|
$
|
166,775
|
|
|
|
|
|
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.
Copyright Business Wire 2013