MINNEAPOLIS--(BUSINESS WIRE)--Jan. 27, 2020-- Graco Inc. (NYSE: GGG) today announced results for the quarter and year ended December 27, 2019.

Summary $ in millions except per share amounts
		Three Months Ended									Twelve Months Ended
		Dec 27, 2019			Dec 28, 2018			% Change			Dec 27, 2019			Dec 28, 2018			% Change
Net Sales		$	412.3		$	406.4		1	%		$	1,646.0		$	1,653.3		(0	)%
Operating Earnings			104.2			96.6		8	%			424.5			436.4		(3	)%
Net Earnings			84.8			73.7		15	%			343.9			341.1		1	%
Diluted Net Earnings per Common Share		$	0.49		$	0.43		14	%		$	2.00		$	1.97		2	%
Adjusted (non-GAAP): (1)
Net Earnings, adjusted		$	82.0		$	73.5		12	%		$	325.4		$	326.1		(0	)%
Diluted Net Earnings per Common Share, adjusted		$	0.48		$	0.43		12	%		$	1.90		$	1.88		1	%

(1) Excludes impacts of excess tax benefits from stock option exercises and certain non-recurring tax provision adjustments. See Financial Results Adjusted for Comparability below for a reconciliation of adjusted non-GAAP financial measures to GAAP.

• Decreases in Asia Pacific sales offset growth in the Americas and EMEA for both the quarter and the year.
• Strong sales growth and favorable operating leverage drove up fourth quarter profitability in the Contractor segment.
• Gross margin rates for the quarter and year decreased due to lower factory volume, unfavorable product and channel mix, and changes in currency translation rates. Strong realized pricing softened the decline in gross margin rates.
• Total operating expenses decreased 6 percent for the quarter and 2 percent for the year.
• The effective income tax rate for the quarter decreased due to an increase in excess tax benefits from stock option exercises. The effective rate for the year decreased mainly due to a tax rate change in a foreign jurisdiction.

“Sales in the fourth quarter reflected trends noted in earlier quarters, with the Asia Pacific region continuing to be particularly challenging,” said Patrick J. McHale, Graco’s President and CEO. “While several end markets and segments were soft in 2019, we were pleased with the performance of our Contractor business and the EMEA region, as each posted solid organic growth. Thanks to the hard work, dedication and outstanding execution of our employees and distributors worldwide, we were able to stick to our playbook. We fully funded our growth strategies, made capital investments exceeding $100 million to expand production and service capabilities, and limited discretionary spending to protect bottom line results.”

Consolidated Results

Sales for the quarter increased 1 percent from the comparable period last year (2 percent at consistent translation rates). Sales increased 4 percent in the Americas and 11 percent in EMEA (14 percent at consistent translation rates), and decreased 17 percent in Asia Pacific (16 percent at consistent translation rates). Sales for the year decreased slightly from the comparable period last year (up 1 percent at consistent translation rates), with increases of 4 percent in the Americas and 3 percent in EMEA (8 percent at consistent translation rates), offset by a 17 percent decrease in Asia Pacific (14 percent at consistent translation rates). Changes in currency translation rates decreased worldwide sales by approximately $3 million (1 percentage point) for the quarter and $29 million (1 percentage point) for the year. Sales from acquired operations contributed approximately $4 million (1 percentage point) of growth to the fourth quarter, and did not have a significant impact on full-year comparisons.

Gross profit margin rates for the quarter and year decreased from the comparable periods last year driven by lower factory volume, unfavorable channel and product mix, and changes in currency translation rates. Price changes implemented early in the year offset the adverse impact of higher material costs, including tariffs.

Total operating expenses for the quarter and year decreased $7 million (6 percent) and $11 million (2 percent), respectively, compared to last year. Reductions in volume and earnings-based expenses more than offset increases in product development expenses, which increased 6 percent for the quarter and 7 percent for the year.

Other expense for the year decreased $6 million from last year, driven by gains on investments used to fund certain pension liabilities, and by lower exchange losses on net assets of foreign operations.

The effective income tax rate was 16 percent for the quarter and 15 percent for the year, both down approximately 2 percentage points from the comparable periods last year. An increase in excess tax benefits from stock option exercises drove the decrease for the quarter. For the year, revaluation of deferred taxes pursuant to a tax rate change in a foreign jurisdiction and an increase in non-recurring benefits from other tax planning activities drove the decrease.

Segment Results

Management assesses performance of segments by reference to operating earnings excluding unallocated corporate expenses. For a reconciliation of segment operating earnings to consolidated operating earnings, refer to the segment information table included in the financial statement section of this release. Certain measurements of segment operations are summarized below:

		Three Months												Twelve Months
		Industrial				Process				Contractor				Industrial				Process				Contractor
Net Sales (in millions)		$	194.8			$	88.9			$	128.6			$	747.4			$	344.9			$	553.7
Percentage change from last year
Sales			(2	)%			1	%			8	%			(4	)%			2	%			4	%
Operating earnings			(6	)%			25	%			51	%			(9	)%			11	%			6	%
Operating earnings as a percentage of sales
2019			31	%			22	%			22	%			33	%			22	%			23	%
2018			32	%			18	%			15	%			35	%			20	%			23	%

Components of net sales change by geographic region for the Industrial segment were as follows:

		Three Months								Twelve Months
		Volume and Price		Acquisitions		Currency		Total		Volume and Price		Acquisitions		Currency		Total
Americas		3%		0%		0%		3%		3%		0%		0%		3%
EMEA		16%		0%		(3)%		13%		7%		0%		(5)%		2%
Asia Pacific		(26)%		0%		0%		(26)%		(19)%		0%		(2)%		(21)%
Consolidated		(1)%		0%		(1)%		(2)%		(2)%		0%		(2)%		(4)%

Continued softness in Asia Pacific end markets caused steep declines in fourth quarter Industrial segment sales. Increases in finishing system sales drove a double-digit percentage increase in EMEA. For the year, underlying sales growth in the Americas and EMEA was more than offset by decreases in Asia Pacific. Operating earnings as a percentage of sales decreased for the quarter and year as the favorable effects of pricing were more than offset by the adverse impacts of higher material costs, lower sales and factory volume, product and channel mix, and currency translation.

Components of net sales change by geographic region for the Process segment were as follows:

		Three Months								Twelve Months
		Volume and Price		Acquisitions		Currency		Total		Volume and Price		Acquisitions		Currency		Total
Americas		(4)%		1%		0%		(3)%		3%		0%		0%		3%
EMEA		(4)%		10%		(1)%		5%		3%		5%		(3)%		5%
Asia Pacific		(2)%		12%		(1)%		9%		(5)%		4%		(3)%		(4)%
Consolidated		(4)%		5%		0%		1%		1%		2%		(1)%		2%

Process segment sales for the quarter increased slightly, as sales from acquired operations more than offset volume declines in organic businesses. For the year, weakness in Asia Pacific also adversely affected Process segment sales, nearly offsetting increases in the Americas and EMEA. Operating margin rates for the quarter and year improved, driven by lower volume and earnings-based costs.

Components of net sales change by geographic region for the Contractor segment were as follows:

		Three Months								Twelve Months
		Volume and Price		Acquisitions		Currency		Total		Volume and Price		Acquisitions		Currency		Total
Americas		10%		0%		0%		10%		5%		0%		0%		5%
EMEA		13%		0%		(3)%		10%		9%		0%		(5)%		4%
Asia Pacific		(4)%		0%		(2)%		(6)%		(6)%		0%		(4)%		(10)%
Consolidated		9%		0%		(1)%		8%		5%		0%		(1)%		4%

Contractor segment sales for the quarter increased by 9 percent at consistent currency translation rates, driving growth for the year to 5 percent, with favorable response to new product offerings and continued strength in construction markets in the Americas and EMEA. Operating margin rate for the quarter increased by 7 percentage points over the comparable quarter last year, driven by strong improvements in gross margin rate and expense leverage. Operating margin rate for the year was consistent with the rate last year.

Outlook

“Heading into 2020, we expect challenging end market conditions to remain in place for at least the first half of the year in our Industrial and Process segments” said McHale. “Our outlook for the Contractor segment remains positive as favorable conditions continue, and demand for our products is solid across major end markets and product categories. As a result, our outlook for 2020 is low single-digit revenue growth on an organic, constant currency basis.”

Financial Results Adjusted for Comparability

Excluding the impacts of excess tax benefits related to stock option exercises and certain tax provision adjustments presents a more consistent basis for comparison of financial results. A calculation of the non-GAAP measurements of adjusted income taxes, effective income tax rates, net earnings and diluted earnings per share follows (in millions except per share amounts):

		Three Months Ended								Twelve Months Ended
		Dec 27, 2019				Dec 28, 2018				Dec 27, 2019				Dec 28, 2018
Earnings before income taxes		$	100.5			$	90.0			$	405.9			$	410.8
Income taxes, as reported		$	15.7			$	16.3			$	62.0			$	69.7
Excess tax benefit from option exercises			2.3				0.2				10.4				10.0
Other non-recurring tax benefit			0.5				—				8.1				5.0
Income taxes, adjusted		$	18.5			$	16.5			$	80.5			$	84.7
Effective income tax rate
As reported			15.6	%			18.1	%			15.3	%			17.0	%
Adjusted			18.5	%			18.4	%			19.8	%			20.6	%
Net Earnings, as reported		$	84.8			$	73.7			$	343.9			$	341.1
Excess tax benefit from option exercises			(2.3	)			(0.2	)			(10.4	)			(10.0	)
Other non-recurring tax benefit			(0.5	)			—				(8.1	)			(5.0	)
Net Earnings, adjusted		$	82.0			$	73.5			$	325.4			$	326.1
Weighted Average Diluted Shares			171.8				170.9				171.6				173.2
Diluted Earnings per Share
As reported		$	0.49			$	0.43			$	2.00			$	1.97
Adjusted		$	0.48			$	0.43			$	1.90			$	1.88

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 our Form 10-K, Form 10-Qs and Form 8-Ks, and other disclosures, including our 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; changes in currency translation rates; economic conditions in the United States and other major world economies; the ability to meet our customers’ needs and changes in product demand; supply interruptions or delays; security breaches; new entrants who copy our products or infringe on our intellectual property; risks incident to conducting business internationally; catastrophic events; changes in laws and regulations; compliance with anti-corruption and trade laws; changes in tax rates or the adoption of new tax legislation; the possibility of asset impairments if acquired businesses do not meet performance expectations; political instability; results of and costs associated with litigation, administrative proceedings and regulatory reviews incident to our business; our ability to attract, develop and retain qualified personnel; the possibility of decline in purchases from a few large customers of the Contractor segment; and variations in activity in the construction, automotive, mining and oil and natural gas industries. Please refer to Item 1A of our Annual Report on Form 10-K for fiscal year 2018 (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 Tuesday, Jan. 28, 2020, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s fourth 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 p.m. ET on Tuesday, Jan. 28, 2020, by dialing 888-203-1112, Conference ID #8157037, if calling within the U.S. or Canada. The dial-in number for international participants is 719-457-0820, with the same Conference ID number. The replay by telephone will be available through 2 p.m. ET on Saturday, Feb. 1, 2020.

About Graco

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 STATEMENTS OF EARNINGS (Unaudited) (In thousands except per share amounts)
		Three Months Ended						Twelve Months Ended
		Dec 27, 2019			Dec 28, 2018			Dec 27, 2019			Dec 28, 2018
Net Sales		$	412,292		$	406,438		$	1,646,045		$	1,653,292
Cost of products sold			202,911			197,682			786,289			770,753
Gross Profit			209,381			208,756			859,756			882,539
Product development			16,941			15,989			67,557			63,124
Selling, marketing and distribution			57,529			62,732			234,325			245,473
General and administrative			30,742			33,461			133,418			137,515
Operating Earnings			104,169			96,574			424,456			436,427
Interest expense			2,526			3,678			13,110			14,385
Other expense, net			1,109			2,851			5,469			11,276
Earnings Before Income Taxes			100,534			90,045			405,877			410,766
Income taxes			15,699			16,322			62,024			69,712
Net Earnings		$	84,835		$	73,723		$	343,853		$	341,054
Net Earnings per Common Share
Basic		$	0.51		$	0.44		$	2.06		$	2.04
Diluted		$	0.49		$	0.43		$	2.00		$	1.97
Weighted Average Number of Shares
Basic			166,911			165,875			166,515			167,364
Diluted			171,814			170,899			171,624			173,213

SEGMENT INFORMATION (Unaudited) (In thousands)
		Three Months Ended								Twelve Months Ended
		Dec 27, 2019				Dec 28, 2018				Dec 27, 2019				Dec 28, 2018
Net Sales
Industrial		$	194,773			$	199,519			$	747,396			$	781,029
Process			88,882				88,303				344,930				337,953
Contractor			128,637				118,616				553,719				534,310
Total		$	412,292			$	406,438			$	1,646,045			$	1,653,292
Operating Earnings
Industrial		$	60,562			$	64,580			$	247,216			$	271,307
Process			19,781				15,885				76,367				68,514
Contractor			27,684				18,373				128,282				120,905
Unallocated corporate (expense)			(3,858	)			(2,264	)			(27,409	)			(24,299	)
Total		$	104,169			$	96,574			$	424,456			$	436,427

GRACO INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
		Dec 27, 2019				Dec 28, 2018
ASSETS
Current Assets
Cash and cash equivalents		$	220,973			$	132,118
Accounts receivable, less allowances of $5,300 and $5,300			267,345				274,608
Inventories			273,233				283,982
Other current assets			29,917				32,508
Total current assets			791,468				723,216
Property, Plant and Equipment, net			325,546				229,295
Goodwill			307,663				293,846
Other Intangible Assets, net			162,623				166,310
Operating Lease Assets			29,891			—
Deferred Income Taxes			39,327				32,055
Other Assets			35,692				28,019
Total Assets		$	1,692,210			$	1,472,741
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Notes payable to banks		$	7,732			$	11,083
Trade accounts payable			54,117				56,902
Salaries and incentives			51,301				62,297
Dividends payable			29,235				26,480
Other current liabilities			142,937				143,041
Total current liabilities			285,322				299,803
Long-term Debt			164,298				266,391
Retirement Benefits and Deferred Compensation			182,707				133,388
Operating Lease Liabilities			24,176				—
Deferred Income Taxes			10,776				16,586
Other Non-current Liabilities			—				4,700
Shareholders’ Equity
Common stock			167,287				165,171
Additional paid-in-capital			578,440				510,825
Retained earnings			448,991				220,734
Accumulated other comprehensive income (loss)			(169,787	)			(144,857	)
Total shareholders’ equity			1,024,931				751,873
Total Liabilities and Shareholders’ Equity		$	1,692,210			$	1,472,741

GRACO INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
		Year Ended
		Dec 27, 2019				Dec 28, 2018
Cash Flows From Operating Activities
Net Earnings		$	343,853			$	341,054
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization			48,911				47,754
Deferred income taxes			(6,411	)			15,405
Share-based compensation			26,669				25,565
Change in
Accounts receivable			8,934				(12,402	)
Inventories			12,435				(30,719	)
Trade accounts payable			(539	)			(1,976	)
Salaries and incentives			(14,069	)			2,336
Retirement benefits and deferred compensation			13,264				(27,237	)
Other accrued liabilities			(11,510	)			7,517
Other			(2,803	)			688
Net cash provided by operating activities			418,734				367,985
Cash Flows From Investing Activities
Property, plant and equipment additions			(127,953	)			(53,854	)
Acquisition of businesses, net of cash acquired			(26,577	)			(10,769	)
Other			(939	)			(1,624	)
Net cash provided by (used in) investing activities			(155,469	)			(66,247	)
Cash Flows From Financing Activities
Borrowings (payments) on short-term lines of credit, net			(3,341	)			4,931
Borrowings on long-term lines of credit			105,423				620,746
Payments on long-term debt and lines of credit			(207,191	)			(583,212	)
Common stock issued			48,250				24,634
Common stock repurchased			(9,482	)			(244,814	)
Taxes paid related to net share settlement of equity awards			(1,268	)			(16,151	)
Cash dividends paid			(106,443	)			(88,845	)
Net cash provided by (used in) financing activities			(174,052	)			(282,711	)
Effect of exchange rate changes on cash			(358	)			187
Net increase (decrease) in cash and cash equivalents			88,855				19,214
Cash and Cash Equivalents
Beginning of year			132,118				112,904
End of year		$	220,973			$	132,118

 

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Source: Graco Inc.

Financial Contact: Mark Sheahan, 612-623-6656

Media Contact: Charlotte Boyd, 612-623-6153
Charlotte_M_Boyd@graco.com