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|Graco Reports Fourth Quarter and Annual Sales and Earnings|
|MINNEAPOLIS, Jan 25, 2010 (BUSINESS WIRE) -- Graco Inc. (NYSE: GGG) today announced results for the quarter and year ended December 25, 2009.
"While we are not satisfied with our 2009 results, we are encouraged by higher order activity in the fourth quarter in Asia Pacific," said Patrick J. McHale, President and Chief Executive Officer. "We began a limited recall of factory employees, and cash flow remains strong. Our focus on managing working capital reduced inventories and receivables by a total of $60 million since the end of last year. We also reduced debt by $100 million (50 percent) and made a voluntary $15 million tax-deductible contribution to our defined benefit pension plan. We intend to continue making targeted investments in our strategic growth initiatives while managing capital."
Sales were down 12 percent for the quarter and 29 percent for the year. For the quarter, sales decreased 20 percent in the Americas and 14 percent in Europe (21 percent at consistent translation rates). Sales for the quarter increased 15 percent in Asia Pacific (10 percent at consistent translation rates). Sales for the year decreased 28 percent in the Americas, 39 percent in Europe (35 percent at consistent translation rates) and 17 percent in Asia Pacific.
Gross profit margin, expressed as a percentage of sales, was 53 percent for the quarter, up from 49 percent for the fourth quarter last year. Approximately half of the increase was from favorable effects of currency translation. Costs related to workforce reductions lowered the 2008 fourth quarter gross margin rate, accounting for approximately 1 percentage point of the increase in 2009. For the year, gross profit margin rate was 51 percent in 2009, down from 53 percent last year. The decrease was primarily due to lower production volumes (approximately 4 percentage points) and increased pension cost (approximately 1 percentage point). Decreases were partially offset by the effects of favorable material costs and pricing.
Total operating expenses for the quarter and year were down 19 percent and 11 percent, respectively. For both the quarter and year, the effects of spending reductions (including lower workforce reduction expenses) and lower volume-related expenses were partially offset by higher pension expenses. The effects of currency translation increased expenses for the quarter by approximately $1 million and decreased expenses for the year by approximately $3 million.
The effective income tax rate for the fourth quarter was 24 percent in 2009 and 21 percent in 2008. A higher-than-expected benefit upon filing of prior year tax returns contributed to a lower rate in the fourth quarter of 2009. The effective rate for the fourth quarter of 2008 was low because the federal R&D tax credit was not renewed until the fourth quarter and no credit was included in the first three quarters of 2008. The effective rate for the year was 29 percent in 2009 and 32 percent in 2008. The effect of federal business credits and the domestic production deduction was greater in 2009 as a percentage of pre-tax earnings as compared to the prior year.
All segments had decreases in sales compared to last year for both the quarter and year. Improved fourth quarter operating earnings of all segments reflect the lower cost structure resulting from workforce and other spending reduction actions taken in the fourth quarter of 2008 and the first quarter of 2009. Contractor operating results for the fourth quarter of 2008 were affected by sales, costs and expenses related to the rollout of entry-level paint sprayers to additional paint and home center stores. For the year, operating earnings of all segments reflect the impacts of low volume and higher pension cost. Mix of product sold and costs related to discontinued products further contributed to lower margin rates in the Lubrication segment.
"During the recession, we continued to fully fund our key growth initiatives," said Patrick J. McHale, President and Chief Executive Officer. "Our product offering, global distribution channel, competitive position and served market segments are broader and stronger than ever. We believe many of our key end markets will improve as we move through 2010, and as our revenue returns, we expect to deliver impressive incremental margins."
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 it is 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 2008 (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 http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.graco.com&esheet=6153851&lan=en_US&anchor=www.graco.com&index=1&md5=86543680104deaa6acb8110704989a9c and the Securities and Exchange Commission's website at http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.sec.gov&esheet=6153851&lan=en_US&anchor=www.sec.gov&index=2&md5=401ab522b9fb428f04813b8346db93f2.
Graco management will hold a conference call, including slides via webcast, with analysts and institutional investors on Tuesday, January 26, 2010, at 11:00 a.m. ET, to discuss Graco's fourth quarter and year-end 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 2:00 p.m. ET on January 26, 2010, by dialing 800.406.7325, Conference ID #4200188, 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 January 31, 2010.
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.
SOURCE: Graco Inc.