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Graco Reports Record Sales and Operating Earnings
Strong Sales Growth in All Segments and Regions
$ in millions except per share amounts
|Three Months Ended|
|Diluted Net Earnings per Common Share||$||0.49||$||0.35||40||%|
|Adjusted (non-GAAP): (1)|
|Net Earnings, adjusted||$||84.1||$||57.0||48||%|
|Diluted Net Earnings per Common Share, adjusted||$||0.48||$||0.33||45||%|
|(1)||Excludes impacts of 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.|
- Sales increased 19 percent, with double-digit percentage growth in all segments and regions. Favorable currency translation contributed 5 percentage points and acquired operations added 3 percentage points of sales growth.
- Gross margin rates remained strong, up slightly compared to the first quarter last year.
- Operating expenses increased 13 percent, including 3 percentage points from currency translation and 2 percentage points from acquired operations. Operating expenses as a percentage of sales decreased by nearly 2 percentage points.
- The effective income tax rate decreased by 5 percentage points, driven by the impacts of U.S. federal income tax reform, partially offset by the effect of a decrease in excess tax benefits from option exercises.
"The Company's record performance from 2017 continued into the first
quarter of 2018, achieving the highest sales and operating earnings for
a quarter in
Sales for the quarter increased 19 percent, with increases of 11 percent
Gross profit margin rates improved slightly for the quarter. Favorable
effects from currency translation were mostly offset by the unfavorable
effect of lower gross margins from acquired operations, including a
The Company adopted the new revenue recognition accounting standard during the first quarter with no significant impact on operating results. The Company also adopted a new accounting standard requiring certain components of pension cost to be reclassified from operating costs and expenses to other non-operating income and expense. The Company had previously classified such cost as unallocated corporate expense, so the reclassification had no impact on segment operating results. Prior year results were restated to conform to current year classification under the new standard.
Total operating expenses for the quarter increased
The effective income tax rate was 20 percent for the quarter, down 5 percentage points from the first quarter last year. Excess tax benefits related to stock option exercises reduced the effective tax rate by 1 percentage point in the first quarter of 2018 and 4 percentage points in the first quarter last year. U.S. federal income tax reform legislation passed at the end of 2017 decreased the effective tax rate by 8 percentage points compared to last year.
Management assesses performance of segments by reference to operating earnings excluding unallocated corporate expenses and asset impairments. 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:
|Net Sales (in millions)||$||195.2||$||80.0||$||131.1|
|Percentage change from last year|
|Operating earnings as a percentage of sales|
Components of net sales change by geographic region for the Industrial segment were as follows:
Industrial segment sales growth included
Components of net sales change by geographic region for the Process segment were as follows:
The Process segment had sales growth in all product applications. Sales growth was particularly strong in the segment's Lubrication division. Operating margin rates for this segment increased 3 percentage points driven by higher sales and favorable expense leverage.
Components of net sales change by geographic region for the Contractor segment were as follows:
Contractor segment sales increased in all channels. Currency translation effects drove the segment's 1 percentage point increase in operating margin rate.
"Demand in the first quarter continued to be broad-based across products and geographies," stated McHale. "We are raising our full-year 2018 outlook to mid-to-high single-digit organic sales growth on a constant currency basis worldwide, from a prior outlook of mid single-digit growth. Industrial segment demand in the first quarter was consistent with our full-year Company outlook, with segment sales outgrowing bookings; we expect the Industrial segment's second quarter growth to moderate and the first half sales growth to be consistent with the full-year Company outlook. Regionally, we expect to achieve mid-to-high single-digit growth for the full-year 2018."
Financial Results Adjusted for Comparability
Excluding the impact of tax benefits related to stock option exercises presents a more consistent basis for comparison of financial results. A calculation of the non-GAAP measurements of adjusted income taxes, effective income tax rates, net earnings and diluted earnings per share follows (in millions except per share amounts):
Three Months Ended
|Earnings before income taxes||$||107.4||$||81.6|
|Income taxes, as reported||$||21.9||$||20.8|
|Excess tax benefit from option exercises||1.4||3.7|
|Income taxes, adjusted||$||23.3||$||24.5|
|Effective income tax rate|
|Net Earnings, as reported||$||85.5||$||60.7|
|Excess tax benefit from option exercises||(1.4||)||(3.7||)|
|Net Earnings, adjusted||$||84.1||$||57.0|
|Weighted Average Diluted Shares||175.6||173.1|
|Diluted Earnings per Share|
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
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; economic conditions in
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.
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
|GRACO INC. AND SUBSIDIARIES|
|CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)|
(In thousands except per share amounts)
Three Months Ended
|Cost of products sold||183,927||154,745|
|Selling, marketing and distribution||62,522||54,389|
|General and administrative||32,914||29,762|
|Other expense, net||1,035||1,805|
|Earnings Before Income Taxes||107,428||81,575|
|Net Earnings (Loss) per Common Share|
|Weighted Average Number of Shares|
|SEGMENT INFORMATION (Unaudited)|
Three Months Ended
|Unallocated corporate (expense)||(6,542||)||(5,782||)|
Christian Rothe, 612-623-6205
Charlotte Boyd, 612-623-6153