Organic Growth and Acquisitions Drive Sales Increases
Graco Inc. (NYSE:GGG) today announced results for the quarter and
nine months ended September 25, 2015.
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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 25,
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Sep 26,
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Sep 25,
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Sep 26,
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2015
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2014
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% Change
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2015
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2014
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% Change
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Net Sales
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$
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319.0
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$
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302.6
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5
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%
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$
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960.9
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$
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915.1
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5
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%
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Operating Earnings
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76.9
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78.9
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(3
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)%
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226.0
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239.5
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(6
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)%
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Net Earnings
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50.7
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59.6
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(15
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)%
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292.2
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176.5
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66
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%
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Diluted Net Earnings per Common Share
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$
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0.86
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$
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0.97
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(11
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)%
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$
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4.90
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$
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2.85
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72
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%
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-
Sales increased 5 percent for both the quarter and the year-to-date.
At consistent translation rates, sales increased 11 percent for the
quarter and 10 percent for the year-to-date, including growth from
acquired operations of 7 percentage points for the quarter and 6
percentage points for the year-to-date, and 4 percentage points of
organic growth for both the quarter and the year-to-date.
-
Changes in currency translation rates reduced sales by approximately
$16 million for the quarter and $46 million for the year-to-date, and
decreased net earnings by approximately $6 million for the quarter and
$16 million for the year-to-date.
-
Operating earnings are down mostly due to the impact of currency
translation.
-
Non-recurring income tax benefits increased year-to-date net earnings
by a total of $9 million, or $0.15 per diluted share.
-
In April, the Company sold the Liquid Finishing business assets
acquired in 2012. Net earnings include Liquid Finishing-related
after-tax investment income totaling $2 million ($0.02 per diluted
share) for the quarter (from post-closing purchase price adjustments)
and $141 million ($2.36 per diluted share) for the year-to-date. Net
earnings in 2014 included after-tax Liquid Finishing investment income
of $9 million ($0.14 per diluted share) for the quarter and $23
million ($0.38 per diluted share) for the year-to-date.
"Through the third quarter, our expectation of mid-single digit organic
growth on a constant currency basis for the full year 2015 remains
intact, with quarterly and year-to-date sales increases at 4 percent,"
said Patrick J. McHale, Graco's President and CEO. "Every region of the
world achieved constant currency organic sales growth in the third
quarter. The Americas continued its solid performance, with
contributions from both the Contractor and Industrial segments, while
the EMEA and Asia Pacific regions grew at a low single digit pace. After
adjusting for foreign currency headwinds and acquisitions, the Company's
gross margins, operating margins, and overall profitability were solid."
Consolidated Results
Changes in currency translation rates reduced sales and net earnings by
approximately $16 million and $6 million, respectively, for the quarter
and $46 million and $16 million, respectively for the year-to-date.
Sales for the quarter increased 5 percent, with increases in all
segments. Sales from operations acquired within the last 12 months
totaled $19 million for the quarter, contributing 7 percentage points of
growth. Organic sales at consistent translation rates increased 4
percent, with increases of 5 percent in the Americas, 3 percent in EMEA
and 3 percent in Asia Pacific.
Year-to-date sales also increased 5 percent, with a 10 percent increase
in the Americas partially offset by a 4 percent decrease in EMEA. Sales
from acquired operations totaled $53 million, contributing 6 percentage
points of growth. Organic sales at consistent translation rates
increased 4 percent, including a 7 percent increase in the Americas and
small changes in EMEA (increase) and Asia Pacific (decrease).
Gross profit margin rates for the quarter and year-to-date were lower
than rates in the comparable periods last year due mostly to changes in
currency translation rates. Favorable effects of realized pricing and
lower material costs offset the impact of lower average gross margin
rates of acquired operations (including purchase accounting effects).
Total operating expenses for the quarter were $6 million (7 percent)
higher than the third quarter last year. Year-to-date operating expenses
were $24 million (9 percent) higher than last year. The increases
included expenses of acquired operations totaling $8 million for the
quarter and $21 million for the year-to-date. Spending related to
regional and product expansion initiatives increased year-to-date
expenses by approximately $3 million. Unallocated corporate expenses
increased $3 million for the quarter and $6 million year-to-date, mostly
from increases in pension, stock compensation and new central warehouse
costs. Changes in currency translation rates reduced operating expenses
by approximately $4 million for the quarter and $13 million for the
year-to-date.
In April, the Company sold the Liquid Finishing business assets acquired
in 2012. Year-to-date held separate investment income includes the
pre-tax gain on sale of $149 million, net of transaction and other
related expenses, and dividends of $42 million. Net earnings for the
quarter include after-tax net gain on the sale of $2 million ($0.02 per
diluted share) from post-closing purchase price adjustments, and
year-to-date after-tax gain and dividends totaling $141 million ($2.36
per diluted share). Net earnings in 2014 included after-tax net
investment income of $9 million ($0.14 per diluted share) for the
quarter and $23 million ($0.38 per diluted share) for the year-to-date.
No further Liquid Finishing dividends will be received.
The effective income tax rate was 31 percent for the quarter, up from 28
percent last year due to post-tax dividends that reduced the rate in the
third quarter of 2014. The year-to-date effective income tax rate of 27
percent decreased 2 percentage points compared to last year. A change in
the Company's assertion with respect to reinvestment of foreign earnings
decreased deferred income taxes related to undistributed foreign
earnings by $7 million and reduced the year-to-date effective tax rate
compared to last year. Higher post-tax dividend income and an additional
non-recurring tax benefit of $2 million further reduced the year-to-date
effective tax rate. Those reductions were partially offset by the tax
rate effects of the gain on the sale of the Liquid Finishing assets.
Change in Financial Reporting Segments
Beginning with the first quarter of 2015 the Company revised the
presentation of its financial reporting segments. Operations of the
Process and the Oil and Natural Gas divisions, historically included in
the Industrial segment, are now aggregated with the Lubrication division
(formerly reported as a separate segment) in the newly-formed Process
segment. This change aligns the types of products offered and markets
served within the segments. Prior year segment information has been
restated to conform to 2015 reporting.
A summary of the Company’s three reportable segments (Industrial,
Process and Contractor) follows.
The Industrial segment includes our Industrial Products and Applied
Fluid Technologies divisions. The Industrial segment markets equipment
and pre-engineered packages for moving and applying paints, coatings,
sealants, adhesives and other fluids. Markets served include automotive
and vehicle assembly and components production, wood and metal products,
rail, marine, aerospace, farm, construction, bus, recreational vehicles,
and various other industries.
The Process segment includes our Process, Oil and Natural Gas, and
Lubrication divisions. The Process segment markets pumps, valves, meters
and accessories to move and dispense chemicals, oil and natural gas,
water, waste water, petroleum, food, lubricants and other fluids.
Markets served include food and beverage, dairy, oil and natural gas,
pharmaceutical, cosmetics, electronics, waste water, mining, fast oil
change facilities, service garages, fleet service centers, automobile
dealerships and industrial lubrication applications.
The Contractor segment remains unchanged. The Contractor segment markets
sprayers for architectural coatings for painting, corrosion control,
texture, and line striping.
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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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Process
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Contractor
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Industrial
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Process
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Contractor
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Net sales (in millions)
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$
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152.2
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$
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64.7
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|
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$
|
102.1
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$
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448.9
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$
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204.3
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$
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307.7
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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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23
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%
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|
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3
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%
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|
|
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(2
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)%
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|
27
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%
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|
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4
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%
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Operating earnings
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|
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3
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%
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|
|
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(14
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)%
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|
|
|
3
|
%
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|
|
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(3
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)%
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|
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(9
|
)%
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1
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%
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Operating earnings as a percentage of sales
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2015
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|
|
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33
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%
|
|
|
|
16
|
%
|
|
|
|
24
|
%
|
|
|
|
32
|
%
|
|
|
|
17
|
%
|
|
|
|
23
|
%
|
2014
|
|
|
|
33
|
%
|
|
|
|
23
|
%
|
|
|
|
23
|
%
|
|
|
|
32
|
%
|
|
|
|
24
|
%
|
|
|
|
24
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%
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Industrial segment sales for the quarter increased 1 percent (8 percent
at consistent translation rates). Sales in this segment increased 7
percent in the Americas, decreased 6 percent in EMEA (increased 8
percent at consistent translation rates) and were flat in Asia Pacific
(6 percent increase at consistent translation rates). Year-to-date sales
decreased 2 percent, but increased 4 percent at consistent translation
rates. Sales increased 4 percent in the Americas, decreased 12 percent
in EMEA (increased 2 percent at consistent translation rates) and
decreased 1 percent in Asia Pacific (increased 3 percent at consistent
translation rates). Operating margin rates for the Industrial segment
for the quarter and year-to-date were consistent with last year.
Process segment sales for the quarter increased 23 percent (28 percent
at consistent translation rates), including double-digit percentage
increases in all regions. Year-to-date sales in this segment increased
27 percent (32 percent at consistent translation rates). Sales increases
came from acquired operations including Alco Valves (acquired fourth
quarter of 2014), White Knight Fluid Handling and High Pressure
Equipment (both acquired in January 2015). Organic sales at consistent
translation rates were down 3 percent for the quarter and up 2 percent
for the year-to-date. Lower average profit margins of acquired
operations, changes in currency translation rates and incremental
investment in oil and natural gas products led to decreases in operating
margin rates for this segment.
Contractor segment sales for the quarter increased 3 percent (6 percent
at consistent translation rates), with an 8 percent increase in the
Americas partially offset by decreases in EMEA and Asia Pacific.
Year-to-date sales in this segment increased 4 percent (8 percent at
consistent translation rates). Sales increased 11 percent in the
Americas, decreased 13 percent in EMEA (flat at consistent translation
rates) and decreased 14 percent in Asia Pacific (8 percent at consistent
translation rates). Operating margin rate for the quarter was
substantially consistent with the comparable period last year, with
unfavorable effects of foreign currency translation offset by volume
leverage. Year-to-date operating margin rate decreased by one percentage
point, mostly due to changes in currency translation rates and
additional marketing spending, including new product launch costs and
other volume-related increases.
In April 2015, the Company sold the Liquid Finishing assets acquired in
2012 that were held as a cost-method investment. Post-closing purchase
price adjustments settled in the third quarter of 2015. The $149 million
pre-tax gain on the sale, net of transaction and other related expenses,
was included in investment income in the Company’s consolidated
statements of earnings. Prior to the sale, income was recognized on
dividends received from after-tax earnings of Liquid Finishing and also
included in investment income. There was no dividend income in the third
quarter of 2015 compared to $9 million in 2014. Year-to-date dividend
income was $42 million in 2015 and $24 million in 2014. Results
excluding Liquid Finishing investment income and expense are a more
meaningful measure of the Company’s on-going operations and provide a
more consistent base of comparison to future results. A calculation of
the non-GAAP measurement of net earnings excluding investment income and
expense follows (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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|
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Sep 25, 2015
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|
Sep 26, 2014
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|
|
Sep 25, 2015
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|
|
Sep 26, 2014
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net Earnings, as reported
|
|
|
$
|
50.7
|
|
|
|
$
|
59.6
|
|
|
|
$
|
292.2
|
|
|
|
$
|
176.5
|
|
Held separate investment (income), net
|
|
|
|
(2.4
|
)
|
|
|
|
(8.5
|
)
|
|
|
|
(190.7
|
)
|
|
|
(22.8
|
)
|
Income tax effect
|
|
|
|
0.8
|
|
|
|
|
(0.2
|
)
|
|
|
|
49.7
|
|
|
|
(0.5
|
)
|
Net Earnings, adjusted
|
|
|
$
|
49.1
|
|
|
|
$
|
50.9
|
|
|
|
$
|
151.2
|
|
|
|
$
|
153.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
$
|
0.86
|
|
|
|
$
|
0.97
|
|
|
|
$
|
4.90
|
|
|
|
$
|
2.85
|
|
Adjusted
|
|
|
$
|
0.84
|
|
|
|
$
|
0.83
|
|
|
|
$
|
2.54
|
|
|
|
$
|
2.47
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Outlook
"We remain focused on achieving mid-single digit organic sales growth on
a constant currency basis worldwide in 2015, as well as growth in all
geographic regions and reportable segments for the full year 2015," said
McHale. "We continue to experience solid demand in our Contractor
Americas business, reflecting the ongoing recovery in the U.S.
residential and non-residential construction markets. While our
worldwide thesis remains intact for the full year, recent demand trends
combined with macroeconomic headwinds and a continued spotty capital
equipment environment in the emerging markets of EMEA and Asia Pacific
may limit growth to the lower end of our expectations, as evidenced by
our 4 percent growth year-to-date. At current exchange rates,
unfavorable changes in foreign currency translation rates create a
full-year headwind of approximately 5 percent on sales and 11 percent on
earnings in 2015."
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 this Form 10-Q
and our Form 10-K and Form 8-Ks, and other disclosures, including our
2014 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: our Company’s growth strategies, which include
making acquisitions, investing in new products, expanding geographically
and targeting new industries; economic conditions in the United States
and other major world economies; changes in currency translation rates;
changes in laws and regulations; compliance with anti-corruption laws;
new entrants who copy our products or infringe on our intellectual
property; risks incident to conducting business internationally; the
ability to meet our customers’ needs and changes in product demand;
supply interruptions or delays; security breaches; political
instability; results of and costs associated with, litigation,
administrative proceedings and regulatory reviews incident to our
business as well as indemnification claims under our asset purchase
agreement with Carlisle Companies Incorporated, Carlisle Fluid
Technologies, Inc., and Finishing Brands Holdings Inc.; the possibility
of decline in purchases from few large customers of the Contractor
segment; variations in activity in the construction and automotive
industries; and natural disasters. Please refer to Item 1A of our Annual
Report on Form 10-K for fiscal year 2014 (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 Thursday, October
22, 2015, at 10:00 a.m. CT, 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.
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 1:00 p.m. CT on October 22, 2015, by dialing
888-203-1112, Conference ID #263158, if calling within the U.S. or
Canada. The dial-in number for international participants is
719-457-0820, with the same Conference ID #. The replay by telephone
will be available through October 26, 2015.
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 Statement of Earnings (Unaudited)
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine Weeks Ended
|
(in thousands, except per share amounts)
|
|
|
Sep 25,
|
|
|
Sep 26,
|
|
|
Sep 25,
|
|
|
Sep 26,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
Net Sales
|
|
|
$
|
318,986
|
|
|
|
$
|
302,614
|
|
|
|
$
|
960,928
|
|
|
|
$
|
915,125
|
|
Cost of products sold
|
|
|
|
148,790
|
|
|
|
|
136,800
|
|
|
|
|
447,980
|
|
|
|
|
413,149
|
|
Gross Profit
|
|
|
|
170,196
|
|
|
|
|
165,814
|
|
|
|
|
512,948
|
|
|
|
|
501,976
|
|
Product development
|
|
|
|
14,783
|
|
|
|
|
13,785
|
|
|
|
|
44,980
|
|
|
|
|
40,349
|
|
Selling, marketing and distribution
|
|
|
|
48,374
|
|
|
|
|
47,466
|
|
|
|
|
149,924
|
|
|
|
|
143,311
|
|
General and administrative
|
|
|
|
30,112
|
|
|
|
|
25,656
|
|
|
|
|
91,995
|
|
|
|
|
78,856
|
|
Operating Earnings
|
|
|
|
76,927
|
|
|
|
|
78,907
|
|
|
|
|
226,049
|
|
|
|
|
239,460
|
|
Interest expense
|
|
|
|
4,025
|
|
|
|
|
4,566
|
|
|
|
|
13,453
|
|
|
|
|
13,830
|
|
Held separate investment (income), net
|
|
|
|
(2,388
|
)
|
|
|
|
(8,520
|
)
|
|
|
|
(190,744
|
)
|
|
|
|
(22,757
|
)
|
Other expense (income), net
|
|
|
|
1,389
|
|
|
|
|
310
|
|
|
|
|
1,661
|
|
|
|
|
355
|
|
Earnings Before Income Taxes
|
|
|
|
73,901
|
|
|
|
|
82,551
|
|
|
|
|
401,679
|
|
|
|
|
248,032
|
|
Income taxes
|
|
|
|
23,210
|
|
|
|
|
23,000
|
|
|
|
|
109,510
|
|
|
|
|
71,500
|
|
Net Earnings
|
|
|
$
|
50,691
|
|
|
|
$
|
59,551
|
|
|
|
$
|
292,169
|
|
|
|
$
|
176,532
|
|
Net Earnings per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.88
|
|
|
|
$
|
0.99
|
|
|
|
$
|
5.02
|
|
|
|
$
|
2.92
|
|
Diluted
|
|
|
$
|
0.86
|
|
|
|
$
|
0.97
|
|
|
|
$
|
4.90
|
|
|
|
$
|
2.85
|
|
Weighted Average Number of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
57,325
|
|
|
|
|
59,928
|
|
|
|
|
58,180
|
|
|
|
|
60,401
|
|
Diluted
|
|
|
|
58,664
|
|
|
|
|
61,542
|
|
|
|
|
59,590
|
|
|
|
|
62,003
|
|
|
|
|
|
|
|
|
Segment Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine Weeks Ended
|
|
|
|
Sep 25,
|
|
|
Sep 26,
|
|
|
Sep 25,
|
|
|
Sep 26,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
|
$
|
152,164
|
|
|
|
$
|
150,481
|
|
|
|
$
|
448,932
|
|
|
|
$
|
459,105
|
|
Process
|
|
|
|
64,710
|
|
|
|
|
52,719
|
|
|
|
|
204,337
|
|
|
|
|
160,579
|
|
Contractor
|
|
|
|
102,112
|
|
|
|
|
99,414
|
|
|
|
|
307,659
|
|
|
|
|
295,441
|
|
Total
|
|
|
$
|
318,986
|
|
|
|
$
|
302,614
|
|
|
|
$
|
960,928
|
|
|
|
$
|
915,125
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
|
$
|
50,822
|
|
|
|
$
|
49,167
|
|
|
|
$
|
144,500
|
|
|
|
$
|
149,164
|
|
Process
|
|
|
|
10,437
|
|
|
|
|
12,161
|
|
|
|
|
34,923
|
|
|
|
|
38,376
|
|
Contractor
|
|
|
|
24,135
|
|
|
|
|
23,358
|
|
|
|
|
70,550
|
|
|
|
|
69,897
|
|
Unallocated corporate (expense)
|
|
|
|
(8,467
|
)
|
|
|
|
(5,779
|
)
|
|
|
|
(23,924
|
)
|
|
|
|
(17,977
|
)
|
Total
|
|
|
$
|
76,927
|
|
|
|
$
|
78,907
|
|
|
|
$
|
226,049
|
|
|
|
$
|
239,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
View source version on businesswire.com: http://www.businesswire.com/news/home/20151021006537/en/
Copyright Business Wire 2015