Graco Reports Record Quarterly Sales and Operating Earnings

July 21, 2021 at 4:15 PM EDT

Double-Digit Sales Growth in All Segments and Regions

MINNEAPOLIS--(BUSINESS WIRE)--Jul. 21, 2021-- Graco Inc. (NYSE: GGG) today announced results for the second quarter ended June 25, 2021.

Summary
$ in millions except per share amounts

 

Three Months Ended

 

Six Months Ended

 

Jun 25,
2021

 

Jun 26,
2020

 

%

Change

 

Jun 25,
2021

 

Jun 26,
2020

 

%

Change

Net Sales

$

507.2

 

 

$

366.9

 

 

38

%

 

$

961.3

 

 

$

740.5

 

 

30

%

Operating Earnings

133.8

 

 

44.8

 

 

199

%

 

262.1

 

 

134.6

 

 

95

%

Net Earnings

110.1

 

 

28.8

 

 

282

%

 

215.8

 

 

101.7

 

 

112

%

Diluted Net Earnings per Common Share

$

0.63

 

 

$

0.17

 

 

271

%

 

$

1.24

 

 

$

0.59

 

 

110

%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted (non-GAAP): (1)

 

 

 

 

 

 

 

 

 

 

 

Operating Earnings, adjusted

$

133.8

 

 

$

79.8

 

 

68

%

 

$

262.1

 

 

$

169.6

 

 

55

%

Net Earnings, adjusted

$

108.0

 

 

$

62.3

 

 

73

%

 

$

209.6

 

 

$

127.5

 

 

65

%

Diluted Net Earnings per Common Share, adjusted

$

0.62

 

 

$

0.37

 

 

68

%

 

$

1.20

 

 

$

0.74

 

 

62

%

(1)

Excludes impacts of the prior year impairment and excess tax benefits from stock option exercises. See Financial Results Adjusted for Comparability below for a reconciliation of adjusted non-GAAP financial measures to GAAP.

  • Net sales for the quarter increased by 38 percent, led by 53 percent growth in the Industrial segment. Favorable currency translation contributed 4 percentage points of sales growth for the quarter.
  • Increased production volume, favorable product and channel mix and favorable changes in currency translation rates offset higher product costs and drove the gross profit margin rate for the quarter 2 percentage points higher than last year.
  • Expense leverage contributed 2 percentage points of operating margin rate growth for the quarter. Total operating expenses increased 26 percent primarily due to increases in sales and earnings-based expenses.
  • 2020 results included a non-cash impairment charge that reduced diluted earnings per share for the quarter and year to date by $0.20.

"Sales in the second quarter grew double-digits in every region and reportable segment on an organic, constant currency basis," said Mark Sheahan, Graco’s President and CEO. "Broad-based growth in the Industrial and Process segments combined with the continued strength in the Contractor segment drove record quarterly sales and operating earnings. Our manufacturing and purchasing teams have performed well to keep up with robust demand in all segments despite supply chain and logistical challenges."

Consolidated Results

Net sales for the quarter increased 38 percent from the comparable period last year (34 percent at consistent translation rates). Sales increased 33 percent in the Americas (32 percent at consistent translation rates), 60 percent in EMEA (49 percent at consistent translation rates) and 34 percent in Asia Pacific (25 percent at consistent translation rates). Year to date sales increased 30 percent from the comparable period last year (26 percent at consistent translation rates). Sales increased 25 percent in the Americas, 41 percent in EMEA (31 percent at consistent translation rates) and 32 percent in Asia Pacific (24 percent at consistent translation rates). Changes in currency translation rates increased worldwide sales by $12 million for the quarter and $23 million for the year to date.

Gross profit margin rates improved approximately 2 percentage points for the quarter and year to date. Increased production volume, favorable product and channel mix and favorable changes in currency translation rates offset higher product costs.

Total operating expenses increased $27 million (26 percentage points) for the quarter and $37 million (18 percentage points) for the year to date mostly due to increases in sales and earnings-based expenses and product development spending. Changes in currency translation rates increased operating expenses by $3 million (2 percentage points) for the quarter and $5 million (2 percentage points) for the year to date.

Other non-operating expenses were comparable for the quarter and decreased $5 million for the year to date mostly due to favorable market valuation changes on investments held to fund certain retirement benefits liabilities.

The effective income tax rate for the quarter and year to date was 16 percent, down 15 percentage points and 2 percentage points from the comparable periods last year, respectively. The decreases in effective tax rates were primarily due to non-deductible impairment charges in the prior year, partially offset by changes in excess tax benefits for stock option exercises.

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

 

Six Months

 

Industrial

 

Process

 

Contractor

 

Industrial

 

Process

 

Contractor

Net Sales (in millions)

$

204.6

 

 

$

97.2

 

 

$

205.4

 

 

$

389.3

 

 

$

188.6

 

 

$

383.4

 

Percentage change from last year

 

 

 

 

 

 

 

 

 

 

 

Sales

53

%

 

25

%

 

32

%

 

33

%

 

15

%

 

35

%

Operating earnings

87

%

 

86

%

 

22

%

 

54

%

 

46

%

 

41

%

Operating earnings as a percentage of sales

 

 

 

 

 

 

 

 

 

 

 

2021

34

%

 

22

%

 

24

%

 

35

%

 

23

%

 

26

%

2020

28

%

 

15

%

 

26

%

 

30

%

 

18

%

 

24

%

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

 

Three Months

 

Six Months

 

Volume
and Price

 

Acquisitions

 

Currency

 

Total

 

Volume
and Price

 

Acquisitions

 

Currency

 

Total

Americas

48%

 

0%

 

1%

 

49%

 

25%

 

0%

 

1%

 

26%

EMEA

55%

 

5%

 

12%

 

72%

 

32%

 

2%

 

10%

 

44%

Asia Pacific

35%

 

0%

 

8%

 

43%

 

27%

 

0%

 

8%

 

35%

Consolidated

46%

 

1%

 

6%

 

53%

 

28%

 

0%

 

5%

 

33%

Industrial segment sales for the quarter and year to date increased sharply in all regions as end markets strengthened from last year. Operating margin rates increased mostly due to higher production volume and expense leverage.

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

 

Three Months

 

Six Months

 

Volume
and Price

 

Acquisitions
and
Divestitures

 

Currency

 

Total

 

Volume
and Price

 

Acquisitions
and
Divestitures

 

Currency

 

Total

Americas

30%

 

(1)%

 

1%

 

30%

 

15%

 

0%

 

0%

 

15%

EMEA

22%

 

(9)%

 

6%

 

19%

 

8%

 

(8)%

 

5%

 

5%

Asia Pacific

30%

 

(21)%

 

8%

 

17%

 

34%

 

(18)%

 

7%

 

23%

Consolidated

29%

 

(7)%

 

3%

 

25%

 

17%

 

(5)%

 

3%

 

15%

The Process segment had organic sales growth in all applications for the quarter and year to date. Higher production volume, the impact of divested operations and expense leverage combined to increase the operating margin rate for the quarter and year to date.

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

 

Three Months

 

Six Months

 

Volume
and Price

 

Acquisitions

 

Currency

 

Total

 

Volume
and Price

 

Acquisitions

 

Currency

 

Total

Americas

25%

 

0%

 

1%

 

26%

 

29%

 

0%

 

1%

 

30%

EMEA

52%

 

0%

 

13%

 

65%

 

45%

 

0%

 

12%

 

57%

Asia Pacific

17%

 

0%

 

12%

 

29%

 

25%

 

0%

 

12%

 

37%

Consolidated

29%

 

0%

 

3%

 

32%

 

32%

 

0%

 

3%

 

35%

Contractor segment sales increased by double-digit percentages in all regions for the quarter and year to date as construction markets remain robust. The operating margin rate for the quarter decreased 2 percentage points as increased sales volume and favorable changes in currency translation rates were unable to offset the adverse impacts of higher material costs, increased factory spending and higher sales and earnings-based expenses. Increased sales volume and favorable changes in currency translation rates drove the operating margin rate 1 percentage point higher for the year to date.

Outlook

"We are initiating an outlook for the full-year 2021 of mid-to-high teen sales growth on an organic, constant currency basis, with growth expected in every region and reportable segment," said Sheahan. "Demand levels in the Industrial and Process segments remain strong across major end markets and product categories. Our outlook for the Contractor segment remains positive as favorable conditions continue, however comparisons in the second half will be challenging."

2022 Change in Organizational Structure

Effective January 1, 2022, our high performance coatings and foam product offerings within the Applied Fluid Technologies division of the Industrial segment will be realigned and managed under the Contractor segment. High performance coatings and foam equipment consists of two-component proportioning systems to spray foam for insulating building walls, roofs, water heaters, refrigerators, hot tubs and other items, and polyurea coatings applied on storage tanks, pipes, roofs, truck beds, concrete and other items. These product offerings also include equipment that sprays specialty coatings for protection and fireproofing and vapor-abrasive blasting equipment. The change will allow segment leadership to address overlap of markets, products, end users and distributors between the contractor-focused businesses.

Segment operating results will be reported under the new organizational structure in the first quarter of 2022, in connection with the effective date of the realignment. Historic segment information restated to conform to the new organizational structure is available as supplemental financial information on the Company’s website at www.graco.com.

Financial Results Adjusted for Comparability

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

 

Three Months Ended

 

Six Months Ended

 

Jun 25,
2021

 

Jun 26,
2020

 

Jun 25,
2021

 

Jun 26,
2020

Operating earnings, as reported

$

133.8

 

 

$

44.8

 

 

$

262.1

 

 

$

134.6

 

Impairment

 

 

35.0

 

 

 

 

35.0

 

Operating earnings, adjusted

$

133.8

 

 

$

79.8

 

 

$

262.1

 

 

$

169.6

 

 

 

 

 

 

 

 

 

Earnings before income taxes

$

131.7

 

 

$

42.0

 

 

$

257.5

 

 

$

124.1

 

Impairment

 

 

35.0

 

 

 

 

35.0

 

Earnings before income taxes, adjusted

$

131.7

 

 

$

77.0

 

 

$

257.5

 

 

$

159.1

 

 

 

 

 

 

 

 

 

Income taxes, as reported

$

21.6

 

 

$

13.2

 

 

$

41.7

 

 

$

22.5

 

Impairment tax benefit

 

 

1.2

 

 

 

 

1.2

 

Excess tax benefit from option exercises

2.1

 

 

0.3

 

 

6.2

 

 

8.0

 

Income taxes, adjusted

$

23.7

 

 

$

14.7

 

 

$

47.9

 

 

$

31.7

 

 

 

 

 

 

 

 

 

Effective income tax rate

 

 

 

 

 

 

 

As reported

16.4

%

 

31.4

%

 

16.2

%

 

18.1

%

Adjusted

18.0

%

 

19.1

%

 

18.6

%

 

19.9

%

 

 

 

 

 

 

 

 

Net Earnings, as reported

$

110.1

 

 

$

28.8

 

 

$

215.8

 

 

$

101.7

 

Impairment, net

 

 

33.8

 

 

 

 

33.8

 

Excess tax benefit from option exercises

(2.1

)

 

(0.3

)

 

(6.2

)

 

(8.0

)

Net Earnings, adjusted

$

108.0

 

 

$

62.3

 

 

$

209.6

 

 

$

127.5

 

 

 

 

 

 

 

 

 

Weighted Average Diluted Shares

174.6

 

 

170.5

 

 

174.2

 

 

171.6

 

Diluted Earnings per Share

 

 

 

 

 

 

 

As reported

$

0.63

 

 

$

0.17

 

 

$

1.24

 

 

$

0.59

 

Adjusted

$

0.62

 

 

$

0.37

 

 

$

1.20

 

 

$

0.74

 

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: the impact of the COVID-19 pandemic on our business; economic conditions in the United States and other major world economies; our Company’s growth strategies, which include making acquisitions, investing in new products, expanding geographically and targeting new industries; changes in currency translation rates; 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, variations in activity in the construction, automotive, mining and oil and natural gas industries, and the impact of declines in interest rates, asset values and investment returns on pension costs and required pension contributions. Please refer to Item 1A of our Annual Report on Form 10-K for fiscal year 2020 (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 Thursday, July 22, 2021, at 11 a.m. ET, 10 a.m. CT, to discuss Graco’s second quarter results.

A real-time listen-only webcast of the conference call will be broadcast by Nasdaq. Individuals can access the call and view the slides on 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 Thursday, July 22, 2021, by dialing 855-859-2056, Conference ID # 9785074, if calling within the U.S. or Canada. The dial-in number for international participants is 404-537-3406, with the same Conference ID #. The replay by telephone will be available through 2 p.m. ET on Thursday, July 29, 2021.

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

 

Six Months Ended

 

Jun 25,
2021

 

Jun 26,
2020

 

Jun 25,
2021

 

Jun 26,
2020

Net Sales

$

507,164

 

 

$

366,892

 

 

$

961,293

 

 

$

740,459

 

Cost of products sold

243,340

 

 

184,363

 

 

450,135

 

 

359,299

 

Gross Profit

263,824

 

 

182,529

 

 

511,158

 

 

381,160

 

Product development

21,406

 

 

17,948

 

 

40,977

 

 

35,029

 

Selling, marketing and distribution

69,126

 

 

48,831

 

 

131,354

 

 

106,219

 

General and administrative

39,449

 

 

36,015

 

 

76,698

 

 

70,365

 

Impairment

 

 

34,962

 

 

 

 

34,962

 

Operating Earnings

133,843

 

 

44,773

 

 

262,129

 

 

134,585

 

Interest expense

2,528

 

 

3,258

 

 

4,956

 

 

5,744

 

Other expense, net

(434

)

 

(510

)

 

(313

)

 

4,713

 

Earnings Before Income Taxes

131,749

 

 

42,025

 

 

257,486

 

 

124,128

 

Income taxes

21,631

 

 

13,193

 

 

41,681

 

 

22,478

 

Net Earnings

$

110,118

 

 

$

28,832

 

 

$

215,805

 

 

$

101,650

 

Net Earnings per Common Share

 

 

 

 

 

 

 

Basic

$

0.65

 

 

$

0.17

 

 

$

1.27

 

 

$

0.61

 

Diluted

$

0.63

 

 

$

0.17

 

 

$

1.24

 

 

$

0.59

 

Weighted Average Number of Shares

 

 

 

 

 

 

 

Basic

169,594

 

 

166,663

 

 

169,271

 

 

167,320

 

Diluted

174,572

 

 

170,549

 

 

174,210

 

 

171,596

 

SEGMENT INFORMATION (Unaudited)

(In thousands)

 

 

Three Months Ended

 

Six Months Ended

 

Jun 25,
2021

 

Jun 26,
2020

 

Jun 25,
2021

 

Jun 26,
2020

Net Sales

 

 

 

 

 

 

 

Industrial

$

204,577

 

 

$

133,287

 

 

$

389,309

 

 

$

291,971

 

Process

97,233

 

 

77,759

 

 

188,606

 

 

163,837

 

Contractor

205,354

 

 

155,846

 

 

383,378

 

 

284,651

 

Total

$

507,164

 

 

$

366,892

 

 

$

961,293

 

 

$

740,459

 

Operating Earnings

 

 

 

 

 

 

 

Industrial

$

69,368

 

 

$

37,001

 

 

$

134,611

 

 

$

87,234

 

Process

21,676

 

 

11,672

 

 

43,409

 

 

29,783

 

Contractor

49,997

 

 

41,109

 

 

98,163

 

 

69,739

 

Unallocated corporate (expense)

(7,198

)

 

(10,047

)

 

(14,054

)

 

(17,209

)

Impairment

 

 

(34,962

)

 

 

 

(34,962

)

Total

$

133,843

 

 

$

44,773

 

 

$

262,129

 

 

$

134,585

 

 

Financial Contact: David Lowe, 612-623-6456
Media Contact: David Ahlers, 612-623-6699
David_M_Ahlers@graco.com

Source: Graco Inc.