Graco Inc.

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SEC Filings

10-Q
GRACO INC filed this Form 10-Q on 07/26/2017
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Item 2. GRACO INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid and coating materials. Management classifies the Company’s business into three reportable segments: Industrial, Process and Contractor. Key strategies include developing and marketing new products, leveraging products and technologies into additional, growing end-user markets, expanding distribution globally and completing strategic acquisitions that provide additional channel and technologies.

The following Management’s Discussion and Analysis reviews significant factors affecting the Company’s results of operations and financial condition. This discussion should be read in conjunction with the financial statements and the accompanying notes to the financial statements.

Consolidated Results

A summary of financial results follows (in millions except per share amounts):
 
Three Months Ended    
 
Six Months Ended
 
June 30,
2017
 
June 24,
2016
 
%
 Change 
 
June 30,
2017
 
June 24,
2016
 
%
 Change 
Net Sales
$
379.5

 
$
348.1

 
9
%
 
$
720.1

 
$
653.0

 
10
%
Operating Earnings
98.8

 
78.3

 
26
%
 
184.6

 
139.3

 
33
%
Net Earnings
79.8

 
50.9

 
57
%
 
140.6

 
90.5

 
55
%
Diluted Net Earnings per Common Share
$
1.38

 
$
0.89

 
55
%
 
$
2.43

 
$
1.59

 
53
%
Solid sales growth combined with improved gross margins and lower operating expenses levered operating earnings to increases of 26 percent and 33 percent for the quarter and year to date, respectively. Diluted earnings per share include $0.23 for the quarter and $0.28 for the year to date from a required change in accounting for stock compensation. Increases in diluted earnings per share include $0.01 for the quarter and $0.02 for the year to date from reduced amortization expense resulting from the impairment charge recorded in the fourth quarter of 2016.

The following table presents an overview of components of net earnings as a percentage of net sales:
 
Three Months Ended   
 
Six Months Ended
 
June 30,
2017
 
June 24,
2016
 
June 30,
2017
 
June 24,
2016
Net Sales
100.0
 %
 
100.0
%
 
100.0
 %
 
100.0
 %
Cost of products sold
46.3

 
46.8

 
45.9

 
46.9

Gross Profit
53.7

 
53.2

 
54.1

 
53.1

Product development
3.9

 
4.5

 
4.1

 
4.6

Selling, marketing and distribution
14.8

 
16.1

 
15.4

 
16.7

General and administrative
9.0

 
10.1

 
9.0

 
10.5

Operating Earnings
26.0

 
22.5

 
25.6

 
21.3

Interest expense
1.1

 
1.3

 
1.1

 
1.3

Other expense (income), net
(0.3
)
 
0.1

 
(0.1
)
 
(0.1
)
Earnings Before Income Taxes
25.2

 
21.1

 
24.6

 
20.1

Income taxes
4.2

 
6.5

 
5.1

 
6.2

Net Earnings
21.0
 %
 
14.6
%
 
19.5
 %
 
13.9
 %



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