Graco Inc.

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Graco Reports Second Quarter Sales and Earnings Revenue Growth Drives Improved Results

MINNEAPOLIS, Jul 21, 2010 (BUSINESS WIRE) --

Graco Inc. (NYSE: GGG) today announced results for the quarter and six months ended June 25, 2010.

Summary
$ in millions except per share amounts

Thirteen Weeks Ended Twenty-six Weeks Ended
June 25, June 26, % June 25, June 26, %
2010 2009 Change 2010 2009 Change
Net Sales $ 192.1 $ 147.7 30 % $ 356.8 $ 285.6 25 %
Net Earnings 24.8 11.6 113 % 45.4 14.4 215 %
Diluted Net Earnings
per Common Share $ 0.41 $ 0.19 116 % $ 0.74 $ 0.24 208 %

  • All divisions and regions had double-digit percentage revenue growth for the quarter and year-to-date.
  • Year-to-date gross margin rate of 53½ percent was 5½ percentage points higher than last year's first-half rate.
  • Net earnings as a percentage of sales increased to 13 percent for the year-to-date, up from 5 percent for the comparable period last year.

"Revenue growth continued to drive improved earnings in the second quarter," said Patrick J. McHale, President and Chief Executive Officer. "Sales gains were strong worldwide, with Asia Pacific leading the way with a 53 percent increase over last year. New product introductions led to improved results for the Contractor segment and solid sales growth continued in the Industrial and Lubrication segments."

Consolidated Results

Sales for the quarter increased 25 percent in the Americas, 27 percent in Europe (33 percent at consistent translation rates) and 53 percent in Asia Pacific (47 percent at consistent translation rates). Translation rates did not have a significant impact on the overall sales increase of 30 percent. Year-to-date sales increased 17 percent in the Americas, 22 percent in Europe and 59 percent in Asia Pacific (51 percent at consistent translation rates). The overall year-to-date growth rate of 25 percent included 2 percentage points from translation.

Gross profit margin, expressed as a percentage of sales, was 53 percent for the quarter and 53½ year-to-date, up from 49½ percent and 48 percent, for the comparable periods last year, respectively. Higher production volume in 2010 was the major factor in the improvement in both the quarter and year-to-date rates. Costs related to workforce reductions lowered the 2009 first-half gross margin rate and the favorable effects of currency translation contributed to the increase in the 2010 year-to-date rate. Selling price increases, lower material and pension costs, and divisional mix also contributed to the increase in margin rates.

Total operating expenses were up $7 million year-to-date. Improved results drove the increase, mainly from higher incentives expense, partially offset by lower pension expense.

The year-to-date effective income tax rate of 35 percent for 2010 was higher than the 32 percent rate for the comparable period of 2009. The federal R&D credit has not been renewed for 2010, so no credit is included in the 2010 rate.

Segment Results

Certain measurements of segment operations are summarized below:

Thirteen Weeks Twenty-six Weeks
Industrial Contractor Lubrication Industrial Contractor Lubrication
Net sales (in millions) $ 100.5 $ 73.8 $ 17.8 $ 197.3 $ 124.6 $ 35.0
Net sales percentage change
from last year 37% 22% 28% 33% 16% 20%
Operating earnings as a
percentage of net sales

2010

29% 18% 10% 30% 15% 10%

2009

18% 20% (12)% 17% 12% (11)%

All segments had double-digit percentage sales growth for the quarter and year-to-date. The Industrial segment had strong increases in all regions, including a 54 percent increase for the quarter in Asia Pacific (63 percent year-to-date). Stocking shipments of new products contributed to strong second quarter sales in Contractor (up 22 percent for the quarter and 16 percent year-to-date). Costs and expenses related to the new product introduction contributed to a small decrease in Contractor's operating earnings as a percentage of sales. Lubrication sales increased 28 percent for the quarter and 20 percent year-to-date, with large increases on small bases in Europe and Asia Pacific. Improved year-to-date operating earnings of all segments reflect the effects of higher sales and 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.

Outlook

"Investments in new product development, international sales people and our global distribution channel are paying dividends in the form of improved results," said Patrick J. McHale, President and Chief Executive Officer. "We saw strong growth in Asia Pacific and Europe in the second quarter, and Industrial segment sales increased by 37 percent. We expect that activity in Asia will remain strong. While second quarter is generally the strongest quarter for our Contractor business, we look for modest improvement in end markets in the Americas and Europe over the last half of 2010."

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 2009 (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=6367841&lan=en-US&anchor=www.graco.com&index=1&md5=3296ff247c2f000d74d81f413dd4c169 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=6367841&lan=en-US&anchor=www.sec.gov&index=2&md5=bfeb10be0f8cd7bab3190311f44e4d4a.

Conference Call

Graco management will hold a conference call, including slides via webcast, with analysts and institutional investors on Thursday, July 22, 2010, at 11:00 a.m. ET, to discuss Graco's second 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 2:00 p.m. ET on July 22, 2010, by dialing 800.406.7325, Conference ID #4323043, 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 July 25, 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.

GRACO INC. AND SUBSIDIARIES
Consolidated Statement of Earnings (Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
(in thousands, except per share amounts) June 25, June 26, June 25, June 26,
2010 2009 2010 2009
Net Sales $ 192,088 $ 147,712 $ 356,809 $ 285,592
Cost of products sold 90,168 74,704 165,594 148,256
Gross Profit 101,920 73,008 191,215 137,336
Product development 9,472 9,781 18,946 19,832
Selling, marketing and distribution 32,647 28,292 61,807 60,225
General and administrative 20,592 16,489 38,547 32,704
Operating Earnings 39,209 18,446 71,915 24,575
Interest expense 1,041 1,221 2,121 2,587
Other expense (income), net (268 ) 91 (107 ) 686
Earnings Before Income Taxes 38,436 17,134 69,901 21,302
Income taxes 13,600 5,500 24,500 6,900
Net Earnings $ 24,836 $ 11,634 $ 45,401 $ 14,402
Net Earnings per Common Share
Basic $ 0.41 $ 0.19 $ 0.75 $ 0.24
Diluted $ 0.41 $ 0.19 $ 0.74 $ 0.24
Weighted Average Number of Shares
Basic 60,597 59,903 60,402 59,770
Diluted 61,184 60,183 60,948 60,043
Segment Information (Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
June 25, June 26, June 25, June 26,
2010 2009 2010 2009
Net Sales
Industrial $ 100,461 $ 73,334 $ 197,253 $ 148,566
Contractor 73,782 60,386 124,579 107,834
Lubrication 17,845 13,992 34,977 29,192
Total $ 192,088 $ 147,712 $ 356,809 $ 285,592
Operating Earnings
Industrial $ 29,565 $ 13,435 $ 60,039 $ 24,930
Contractor 13,203 12,043 18,086 13,282
Lubrication 1,868 (1,745 ) 3,575 (3,181 )
Unallocated corporate (expense) (5,427 ) (5,287 ) (9,785 ) (10,456 )
Total $ 39,209 $ 18,446 $ 71,915 $ 24,575
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 http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.graco.com&esheet=6367841&lan=en-US&anchor=www.graco.com&index=5&md5=c8c7726051d5dd7813abd6dd4794028d

SOURCE: Graco Inc.

Graco Inc.
James A. Graner, 612-623-6635