UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  January 26, 2009

	Graco Inc.
	(Exact name of registrant as specified in its charter)

Minnesota		001-09249		41-0285640
(State or other jurisdiction         of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

88-11th Avenue Northeast Minneapolis, Minnesota		55413
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (612) 623-6000

	Not Applicable
	(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ]	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ]	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ]	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02.     Results of Operations and Financial Condition

        On January 26, 2009, Graco Inc. issued a press release to report the Company’s results of operations and financial condition for the year ended December 26, 2008. A copy of this press release is furnished as Exhibit 99.1 hereto and is incorporated herein by reference.

Item 9.01.     Financial Statements and Exhibits

(c)	Exhibits
	99.1	Press Release dated January 26, 2009.

Signature

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		GRACO INC.
Date:	January 27, 2009	By:	/s/Karen Park Gallivan
			Karen Park Gallivan
		Its:	Vice President, General Counsel and Secretary

Exhibit 99.1

 

GRACO REPORTS FOURTH QUARTER AND ANNUAL SALES AND EARNINGS

 

MINNEAPOLIS, MN (January 26, 2009) - Graco Inc. (NYSE: GGG) today announced results for the quarter and year ended December 26, 2008.

Summary

$ in millions except per share amounts

 

“We are confident that our business model, strong management and long-term growth strategies are positioning the Company for future profitable growth. Our solid balance sheet and strong cash flow allow us to continue to strategically fund growth initiatives for new products and international expansion,” said Patrick J. McHale, President and Chief Executive Officer.

Consolidated Results

Sales for the quarter were lower than the comparable period last year in all regions, decreasing 17 percent in the Americas, 21 percent in Europe and 22 percent in Asia Pacific. Translation rates had an adverse impact on sales, contributing approximately 3 percentage points of the 19 percent decrease for the quarter.

Sales for the year were 3 percent lower than last year, with a 9 percent decrease in the Americas, an 8 percent increase in Europe and a 3 percent increase in Asia Pacific. Approximately 5 percentage points of the growth in Europe was from currency translation.

Sales include a total of $4 million for the quarter and $12 million for the year from GlasCraft® and Airlessco® operations acquired in 2008.

Gross profit margin for the quarter, expressed as a percentage of sales, was 48.8 percent, down from last year’s fourth quarter percentage of 53.5 percent, due to lower production volumes and unfavorable currency translation rates (each approximately 2 percentage points), and workforce reduction costs (nearly 1 percentage point).

Gross profit margin percentage for the year was 52.9 percent compared to 53.2 percent last year. The effects of higher material and other costs on the gross margin rate were mostly offset by the impact of favorable currency translation rates, pricing and manufacturing efficiencies.

Operating expenses for the quarter were $10 million (19 percent) higher than the comparable period last year. They included $6 million associated with the rollout of entry-level paint sprayers to additional paint and home center stores; $4 million of impairment charges because difficult economic conditions affected the value of certain intangible assets; $3 million related to workforce reductions; and $3 million from acquired GlasCraft® and Airlessco® operations.

For the year, operating expenses were $30 million (14 percent) higher than last year, including $7 million from acquired operations. In addition to expenses related to fourth quarter actions, continued strategic investments in product and market development contributed to the increase in operating expenses for the year, including expenses related to the introduction of new product lines, new product development teams and additional sales and marketing personnel in developing countries.

Year-to-date interest expense was $4 million higher than last year due to borrowings used for the purchase and retirement of Company shares and for business acquisitions.

The passage of legislation renewing R&D tax credits resulted in an effective tax rate for the fourth quarter of 20.5 percent, down from 32 percent last year. The year-to-date effective tax rate of 32.3 percent was slightly lower than last year due to the settlement of the examination of the Company’s income tax returns in the first quarter of 2008.

In 2008, the Company’s balance sheet was affected by a change in the funded status of the Company’s qualified defined benefit pension plan. The funded status changed from a $30 million asset to a $70 million liability as the value of plan assets declined with the downturn in financial markets.

Segment Results

Certain measurements of segment operations are summarized below:

 

Industrial segment sales for the quarter were 17 percent lower than last year, with double-digit percentage decreases in all regions. For the year, there was modest growth in all regions. Operating earnings in this segment were affected by impairment charges, selling and product development initiatives and costs and expenses resulting from acquisition and integration related activities.

Contractor segment sales for the quarter were down 23 percent compared to the fourth quarter last year, also experiencing double-digit percentage decreases in all regions. For the year, an 8 percent increase in Europe (3 percent at consistent translation rates) was not enough to offset the 22 percent decrease in the Americas. The decrease in sales without a corresponding decrease in expenses had a large impact on the operating earnings of this segment. Operating results for this segment include expenses for developing products for new markets and the launch and production of new paint sprayer units in the paint and home center channels.

Lubrication segment sales for the quarter were 16 percent lower than last year. Sales in the Americas and Asia Pacific were each down 18 percent but sales were up 6 percent in Europe (12 percent at consistent translation rates). For the year, sales were down 3 percent. Solid growth in Europe and Asia Pacific was not enough to offset the 7 percent decrease in the Americas. Improvement in year-to-date operating profitability is related to the integration and consolidation of Lubrication operations in 2007, although segment profitability has also been affected by a sales decline in the higher-margin vehicle services product line.

Outlook

“We expect that economic conditions will continue to present a challenging operating environment in the coming year” said Patrick J. McHale, President and Chief Executive Officer. “We have taken steps to better align our operations with market conditions. Workforce reductions are expected to yield savings of $9 million in 2009. We are also selectively reducing capital expenditures and discretionary spending to further control costs. We expect headwinds from less favorable currency translation and an $18 million increase in pension cost in 2009. We believe that a cash contribution to the plan will not be required in 2009, however we will consider possible contributions later in the year. We intend to continue making targeted investments in key operating and growth strategies including expenditures for improving manufacturing efficiencies, new product development, expanding distribution, entering new markets and pursuing acquisitions. We believe that by doing so, we are placing the Company and its shareholders in a position to benefit from the economic recovery when it comes.”

Cautionary Statement Regarding Forward-Looking Statements

A forward-looking statement is any statement made in this earnings release and other reports that the Company files periodically with the Securities and Exchange Commission, as well as in press releases, analyst briefings, conference calls and the Company’s Annual Report to shareholders, which reflects the Company’s current thinking on market trends and the Company’s future financial performance at the time they are made. All forecasts and projections are forward-looking statements. The Company undertakes no obligation to update these statements in light of new information or future events.

The Company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 by making cautionary statements concerning any forward-looking statements made by or on behalf of the Company. The Company cannot give any assurance that the results forecasted in any forward-looking statement will actually be achieved. 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: economic conditions in the United States and other major world economies, currency fluctuations, political instability, changes in laws and regulations, and changes in product demand. Please refer to Item 1A of, and Exhibit 99 to, the Company’s Annual Report on Form 10-K for fiscal year 2007 (and most recent Form 10-Q, if applicable) 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.

Conference Call

A conference call, including slides via webcast, with analysts and institutional investors will be held Tuesday, January 27, 2009, at 11:00 a.m. ET to discuss Graco’s fourth quarter and year-end results. Graco management will host the call.

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 under Investor Relations. Slides will be available on January 27 at 9 a.m. ET. 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 January 27, 2009, by dialing 800.405.2236, Conference ID #11124982, if calling within the U.S. or Canada. The dial-in number for international participants is 303.590.3000, with the same Conference ID #. The replay by telephone will be available through January 30, 2009.

Graco Inc. supplies technology and expertise for the management of fluids in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid 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.

 

 

 

 

 

 

 

 

 

 

# # #