GGG

GRACO INC

Industrials | Large Cap

$0.77

EPS Forecast

$533.8

Revenue Forecast

The company already released most recent quarter's earnings. We will publish our AI's next quarter's forecast around 2024-12-31
EX-99.1 2 ggg12272019exhibit991.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
 
 
GRACO INC.
ggg2019q4gracoa13.jpg
 
 
 
P.O. Box 1441
ggg2019q4newsreleasea13.jpg
Minneapolis, MN
55440-1441
NYSE: GGG
FOR IMMEDIATE RELEASE:
FOR FURTHER INFORMATION:
Monday, January 27, 2020
Financial Contact: Mark Sheahan, 612-623-6656
Media Contact: Charlotte Boyd, 612-623-6153
Charlotte_M_Boyd@graco.com

Graco Reports Fourth Quarter and Annual Results

MINNEAPOLIS (January 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.”



Page 2 GRACO



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
%




Page 3 GRACO


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.



Page 4 GRACO



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



Page 5 GRACO


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.




Page 6 GRACO


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





Page 7 GRACO


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





Page 8 GRACO


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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