GRACO REPORTS SECOND QUARTER SALES AND EARNINGS

 

MINNEAPOLIS, MN (July 22, 2009) - Graco Inc. (NYSE: GGG) today announced results for the quarter and six months ended June 26, 2009.

 

Summary

$ in millions except per share amounts

 

 

 

“While weak economic conditions continued to affect our business, profitability improved from the first quarter” said Patrick J. McHale,

President and Chief Executive Officer. “We are resolved to continue investing in growth initiatives including product development,

international expansion and entering new markets. At the same time, we remain flexible and ready to adapt to the economic

environment as appropriate.”

 

Consolidated Results

 

Sales are down 38 percent for the quarter and 36 percent year-to-date. For the quarter, sales decreased 33 percent in the

Americas, 52 percent in Europe (46 percent at consistent translation rates) and 29 percent in Asia Pacific. Year-to-date sales

decreased 32 percent in the Americas, 47 percent in Europe (40 percent at consistent translation rates) and 27 percent in

Asia Pacific.

 

Gross profit margin, expressed as a percentage of sales, was 49.4 percent for the quarter and 48.1 percent year-to-date,

down from 53.8 percent and 54.3 percent, respectively, for the comparable periods last year. Decreases in both the quarter

and year-to-date are due to lower production volumes (approximately 4 percentage points), unfavorable currency translation

rates (approximately 1½ percentage points) and increased pension cost (approximately 1 percentage point).

Decreases were offset somewhat by favorable material costs (approximately 1 percentage point). Workforce

reduction costs in the first quarter affected the year-to-date margin rate by approximately 1 percentage point.

 

Total operating expenses for the quarter and year-to-date are down 12 percent and 7 percent, respectively. Decreases from

translation effects ($2 million for the quarter, $4 million year-to-date), lower incentive and bonus provisions and spending

reductions are partially offset by higher product development and pension expenses. Sustained investment in product

development reflects the Company’s commitment to new and improved products as a key component of its strategy for

future growth. Year-to-date operating expenses include approximately $2 million related to workforce reductions made

primarily in the first quarter.

 

Segment Results

 

Certain measurements of segment operations are summarized below:

 

 

All segments experienced double-digit percentage decreases in sales compared to last year for both the quarter

and year-to-date.  Second quarter operating earnings of all segments reflect the lower cost structure resulting from

workforce and other spending reduction actions taken in the first quarter of 2009 and the fourth quarter of 2008.

Year-to-date operating earnings of all segments reflect the impacts of low volume, workforce reduction costs

and higher product development spending.  Contractor operating results are affected by sales, costs and expenses

related to the rollout of entry-level paint sprayers to additional paint and home center stores in both 2009 and 2008.

Mix of product sold and costs related to discontinued products contributed to lower margin rates in the Lubrication segment.

 

Outlook

 

“We are hopeful that the worst of the economic crisis is behind us, but we expect that global economic conditions will

continue to present a challenging operating environment for at least the rest of the year” said Patrick J. McHale,

President and Chief Executive Officer. “We intend to continue making targeted investments in our strategic growth

initiatives. We will continue to strengthen our competitive position, expand our product offering, build our global

channel and enter new markets. We are working to position the Company to emerge from this recession with

strong, profitable growth. The timing and shape of this recovery are highly uncertain, so we will remain flexible and

have contingency plans in place to appropriately respond to conditions as they unfold.”

 

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 they are 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

www.graco.com  and the Securities and Exchange Commission’s website at www.sec.gov.

 

 

Conference Call

 

Graco management will hold a conference call, including slides via webcast, with analysts and institutional

investors on Thursday, July 23, 2009, 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 23, 2009, by dialing 800.406.7325,

Conference ID #4114013, 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 27, 2009.

 

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