MINNEAPOLIS--(BUSINESS WIRE)--Graco Inc. (NYSE: GGG) today announced results for the quarter and year ended December 31, 2010.
| Summary | ||||||||||||||||||||||||||||||||||||||
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$ in millions except per share amounts |
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| Quarter Ended | Year Ended | |||||||||||||||||||||||||||||||||||||
| Dec 31, | Dec 25, | % | Dec 31, | Dec 25, | % | |||||||||||||||||||||||||||||||||
| 2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||||||||||||||||
| Net Sales | $ | 197.3 | $ | 146.3 | 35 | % | $ | 744.1 | $ | 579.2 | 28 | % | ||||||||||||||||||||||||||
| Net Earnings | 27.0 | 17.2 | 57 | % | 102.8 | 49.0 | 110 | % | ||||||||||||||||||||||||||||||
| Diluted Net Earnings | ||||||||||||||||||||||||||||||||||||||
| per Common Share | $ | 0.44 | $ | 0.28 | 57 | % | $ | 1.69 | $ | 0.81 | 109 | % | ||||||||||||||||||||||||||
- Sales growth in all segments and regions exceeded 30 percent for the quarter and 20 percent for the year.
- Sales in the Lubrication segment grew 52 percent for the quarter and 35 percent for the year.
- Gross margin rate was 1½ percentage points higher for the quarter and 3½ points higher for the year.
- Operating expenses as a percentage of sales for the quarter were 1 percentage point lower than last year. For the year, operating expenses as a percentage of sales were 4 percentage points lower than last year.
- Return on sales was 14 percent for both the quarter and the year, up from 12 percent for the quarter and 8½ percent for the year in 2009.
“The global industrial recovery, along with our investments in new products, innovative technologies and commercial capabilities to support geographic expansion, led to improved results in 2010,” said Patrick J. McHale, President and Chief Executive Officer. “Sales growth was strong in all divisions and regions, including a 46 percent increase in Asia Pacific.”
Consolidated Results
For the quarter, sales increased 35 percent in the Americas, 33 percent in Europe (42 percent at consistent translation rates), and 37 percent in Asia Pacific (33 percent at consistent translation rates). For the year, sales increased 24 percent in the Americas, 25 percent in Europe (29 percent at consistent translation rates) and 46 percent in Asia Pacific (41 percent at consistent translation rates). There were 53 weeks in our fiscal 2010, including 14 weeks in the fourth quarter. There were 52 weeks in fiscal 2009, with 13 weeks in the fourth quarter. Translation rates did not have a significant impact on the total sales increase of 35 percent for the quarter and 28 percent for the year.
Gross profit margin, expressed as a percentage of sales, was 54½ percent for the quarter and 54 percent for the year. Last year, gross profit margin rate was 53 percent for the quarter and 50½ percent for the year. Improvement in both the quarter and the year is mainly from higher production volumes. Other factors contributing to improvement in the gross margin rate included selling price increases and lower pension costs in 2010, and costs related to workforce reductions that lowered the 2009 rate.
Total operating expenses increased $16 million for the quarter and $32 million for the year due to higher levels of business activity and improved results. Higher incentives expense accounted for approximately half of the increase for the quarter and two-thirds of the increase for the year. Operating expenses as a percentage of sales decreased to 35½ percent from 36½ percent for the quarter and decreased to 33½ percent from 37½ percent for the year.
The effective income tax rate was 26 percent for the quarter and 31 percent for the year, compared to 23½ percent and 29 percent for the comparable periods last year. In both 2010 and 2009, the effective rate for the quarter was lower than the annual rate because the federal R&D tax credit was not renewed until the fourth quarter and no credits were included in the first three quarters. The effect of the federal R&D tax credit in 2010 was lower as a percentage of pre-tax earnings compared to last year.
Segment Results
Certain measurements of segment operations are summarized below:
| Quarter Ended | Year Ended | ||||||||||||||||||||||||||||||
| Industrial | Contractor | Lubrication | Industrial | Contractor | Lubrication | ||||||||||||||||||||||||||
| Net sales (in millions) | $ | 113.1 | $ | 61.6 | $ | 22.6 | $ | 409.6 | $ | 256.6 | $ | 77.9 | |||||||||||||||||||
| Net sales percentage change | |||||||||||||||||||||||||||||||
| from last year | 31 % | 36 % | 52 % | 31 % | 23 % | 35 % | |||||||||||||||||||||||||
| Operating earnings as a | |||||||||||||||||||||||||||||||
| percentage of net sales | |||||||||||||||||||||||||||||||
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2010 |
31 % | 8 % | 11 % | 31 % | 14 % | 11 % | |||||||||||||||||||||||||
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2009 |
27 % | 10 % | 3 % | 22 % | 14 % | (5)% | |||||||||||||||||||||||||
Industrial segment sales increased 31 percent for both the quarter and the year. Sales growth for the quarter was consistent across regions. For the year, sales increased 49 percent in Asia Pacific (44 percent at consistent translation rates), 26 percent in the Americas and 24 percent in Europe (27 percent at consistent translation rates). Higher sales and the resulting increase in production volume led to improvement in operating earnings as a percentage of sales.
Contractor segment sales increased 36 percent for the quarter and 23 percent for the year. Sales for the quarter increased 35 percent in the Americas, 42 percent in Europe (52 percent at consistent translation rates) and 28 percent in Asia Pacific (24 percent at consistent translation rates). For the year, sales increased 22 percent in the Americas and 24 percent in both Europe and Asia Pacific (29 percent in Europe and 18 percent in Asia Pacific at consistent translation rates). Operating margin percentages in this segment were held down by costs and expenses related to new product introductions and expanding distribution.
Lubrication segment sales increased 52 percent for the quarter and 35 percent for the year. Sales for the quarter increased 43 percent in the Americas, 63 percent in Europe and 92 percent in Asia Pacific. For the year, sales increased 23 percent in the Americas, 56 percent in Europe and doubled in Asia Pacific. Sales of industrial lubrication products contributed significantly to the strong growth for the segment. For both the quarter and the year, higher sales and the resulting increase in production volume led to improved operating earnings as a percentage of sales.
Outlook
“We expect to build on momentum created in 2010, ” said Patrick J. McHale, President and Chief Executive Officer. “In 2011, we intend to expand our capital resources, make additional share repurchases and continue to evaluate acquisition prospects. We will continue to pursue our growth strategies including product development, international expansion, entering new markets and strategic acquisitions.”
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 it is 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 2009 (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 Tuesday, February 1, 2011, at 11:00 a.m. ET, to discuss Graco’s fourth quarter and year-end 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 February 1, 2011, by dialing 800.406.7325, Conference ID #4399746, 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 February 4, 2011.
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.
| GRACO INC. AND SUBSIDIARIES | ||||||||||||||||||||||||
| Consolidated Statement of Earnings (Unaudited) | ||||||||||||||||||||||||
| Quarter Ended | Year Ended | |||||||||||||||||||||||
| Dec 31, | Dec 25, | Dec 31, | Dec 25, | |||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
| Net Sales | $ | 197,293 | $ | 146,312 | $ | 744,065 | $ | 579,212 | ||||||||||||||||
| Cost of products sold | 89,621 | 68,973 | 340,620 | 286,396 | ||||||||||||||||||||
| Gross Profit | 107,672 | 77,339 | 403,445 | 292,816 | ||||||||||||||||||||
| Product development | 9,490 | 8,954 | 37,699 | 37,538 | ||||||||||||||||||||
| Selling, marketing and distribution | 40,816 | 28,736 | 135,903 | 115,550 | ||||||||||||||||||||
| General and administrative | 19,563 | 15,944 | 76,702 | 65,261 | ||||||||||||||||||||
| Operating Earnings | 37,803 | 23,705 | 153,141 | 74,467 | ||||||||||||||||||||
| Interest expense | 1,025 | 1,119 | 4,184 | 4,854 | ||||||||||||||||||||
| Other expense, net | 270 | 57 | 417 | 946 | ||||||||||||||||||||
| Earnings Before Income Taxes | 36,508 | 22,529 | 148,540 | 68,667 | ||||||||||||||||||||
| Income taxes | 9,500 | 5,300 | 45,700 | 19,700 | ||||||||||||||||||||
| Net Earnings | $ | 27,008 | $ | 17,229 | $ | 102,840 | $ | 48,967 | ||||||||||||||||
| Net Earnings per Common Share | ||||||||||||||||||||||||
| Basic | $ | 0.45 | $ | 0.29 | $ | 1.71 | $ | 0.82 | ||||||||||||||||
| Diluted | $ | 0.44 | $ | 0.28 | $ | 1.69 | $ | 0.81 | ||||||||||||||||
| Weighted Average Number of Shares | ||||||||||||||||||||||||
| Basic | 59,944 | 59,980 | 60,209 | 59,865 | ||||||||||||||||||||
| Diluted | 60,700 | 60,518 | 60,803 | 60,229 | ||||||||||||||||||||
| Segment Information (Unaudited) | ||||||||||||||||||||||||
| Quarter Ended | Year Ended | |||||||||||||||||||||||
| Dec 31, | Dec 25, | Dec 31, | Dec 25, | |||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
| Net Sales | ||||||||||||||||||||||||
| Industrial |
$ |
113,080 | $ | 86,127 | $ | 409,569 | $ | 312,935 | ||||||||||||||||
| Contractor | 61,647 | 45,331 | 256,588 | 208,544 | ||||||||||||||||||||
| Lubrication | 22,566 | 14,854 | 77,908 | 57,733 | ||||||||||||||||||||
| Total | $ | 197,293 | $ | 146,312 | $ | 744,065 | $ | 579,212 | ||||||||||||||||
| Operating Earnings | ||||||||||||||||||||||||
| Industrial | $ | 35,032 | $ | 23,048 | $ | 126,266 | $ | 68,310 | ||||||||||||||||
| Contractor | 5,113 | 4,532 | 36,952 | 28,952 | ||||||||||||||||||||
| Lubrication | 2,571 | 441 | 8,897 | (2,907 | ) | |||||||||||||||||||
| Unallocated corporate (expense) | (4,913 | ) | (4,316 | ) | (18,974 | ) | (19,888 | ) | ||||||||||||||||
| Total | $ | 37,803 | $ | 23,705 | $ | 153,141 | $ | 74,467 | ||||||||||||||||
| GRACO INC. AND SUBSIDIARIES | ||||||||||||||
| Consolidated Balance Sheets (Unaudited) | ||||||||||||||
| (In thousands) | ||||||||||||||
| Dec 31, | Dec 25, | |||||||||||||
| 2010 | 2009 | |||||||||||||
| ASSETS | ||||||||||||||
| Current Assets | ||||||||||||||
| Cash and cash equivalents | $ | 9,591 | $ | 5,412 | ||||||||||
| Accounts receivable, less allowances of $5,600 and $6,500 | 124,593 | 100,824 | ||||||||||||
| Inventories | 91,620 | 58,658 | ||||||||||||
| Deferred income taxes | 18,647 | 20,380 | ||||||||||||
| Other current assets | 7,957 | 3,719 | ||||||||||||
| Total current assets | 252,408 | 188,993 | ||||||||||||
| Property, Plant and Equipment | ||||||||||||||
| Cost | 344,854 | 334,440 | ||||||||||||
| Accumulated depreciation | (210,669 | ) | (195,387 | ) | ||||||||||
| Property, plant and equipment, net | 134,185 | 139,053 | ||||||||||||
| Goodwill | 91,740 | 91,740 | ||||||||||||
| Other Intangible Assets, net | 28,338 | 40,170 | ||||||||||||
| Deferred Income Taxes | 14,696 | 8,372 | ||||||||||||
| Other Assets | 9,107 | 8,106 | ||||||||||||
| Total Assets | $ | 530,474 | $ | 476,434 | ||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||
| Current Liabilities | ||||||||||||||
| Notes payable to banks | $ | 8,183 | $ | 12,028 | ||||||||||
| Trade accounts payable | 19,669 | 17,983 | ||||||||||||
| Salaries and incentives | 34,907 | 14,428 | ||||||||||||
| Dividends payable | 12,610 | 12,003 | ||||||||||||
| Other current liabilities | 44,385 | 47,373 | ||||||||||||
| Total current liabilities | 119,754 | 103,815 | ||||||||||||
| Long-term debt | 70,255 | 86,260 | ||||||||||||
| Retirement Benefits and Deferred Compensation | 76,351 | 73,705 | ||||||||||||
| Uncertain Tax Positions | - | 3,000 | ||||||||||||
| Shareholders' Equity | ||||||||||||||
| Common stock | 60,048 | 59,999 | ||||||||||||
| Additional paid-in-capital | 212,073 | 190,261 | ||||||||||||
| Retained earnings | 44,436 | 11,121 | ||||||||||||
| Accumulated other comprehensive income (loss) | (52,443 | ) | (51,727 | ) | ||||||||||
| Total shareholders' equity | 264,114 | 209,654 | ||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 530,474 | $ | 476,434 | ||||||||||
| GRACO INC. AND SUBSIDIARIES | |||||||||||||
| Consolidated Statements of Cash Flows (Unaudited) | |||||||||||||
| (In thousands) | |||||||||||||
| Year Ended | |||||||||||||
| Dec 31, | Dec 25, | ||||||||||||
| 2010 | 2009 | ||||||||||||
| Cash Flows From Operating Activities | |||||||||||||
| Net Earnings | $ | 102,840 | $ | 48,967 | |||||||||
| Adjustments to reconcile net earnings to | |||||||||||||
| net cash provided by operating activities | |||||||||||||
| Depreciation and amortization | 33,973 | 35,140 | |||||||||||
| Deferred income taxes | (4,248 | ) | (69 | ) | |||||||||
| Share-based compensation | 10,024 | 9,369 | |||||||||||
| Excess tax benefit related to share-based payment arrangements | (1,988 | ) | (375 | ) | |||||||||
| Change in | |||||||||||||
| Accounts receivable | (23,285 | ) | 28,420 | ||||||||||
| Inventories | (32,997 | ) | 32,663 | ||||||||||
| Trade accounts payable | 1,670 | (701 | ) | ||||||||||
| Salaries and incentives | 20,453 | (2,893 | ) | ||||||||||
| Retirement benefits and deferred compensation | (1,428 | ) | (848 | ) | |||||||||
| Other accrued liabilities | (18 | ) | (2,838 | ) | |||||||||
| Other | (3,873 | ) | (303 | ) | |||||||||
| Net cash provided by operating activities | 101,123 | 146,532 | |||||||||||
| Cash Flows From Investing Activities | |||||||||||||
| Property, plant and equipment additions | (16,620 | ) | (11,463 | ) | |||||||||
| Proceeds from sale of property, plant and equipment | 257 | 770 | |||||||||||
| Investment in life insurance | (1,499 | ) | (1,499 | ) | |||||||||
| Capitalized software and other intangible asset additions | (907 | ) | (602 | ) | |||||||||
| Net cash used in investing activities | (18,769 | ) | (12,794 | ) | |||||||||
| Cash Flows From Financing Activities | |||||||||||||
| Borrowings on short-term lines of credit | 10,584 | 10,824 | |||||||||||
| Payments on short-term lines of credit | (13,789 | ) | (17,209 | ) | |||||||||
| Borrowings on long-term line of credit |
140,540 |
270,715 |
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Payments on long-term line of credit |
(156,545 |
) |
(364,455 |
) | |||||||||
| Excess tax benefit related to share-based payment arrangements | 1,988 | 375 | |||||||||||
| Common stock issued | 12,794 | 6,571 | |||||||||||
| Common stock repurchased | (24,218 | ) | (187 | ) | |||||||||
| Cash dividends paid | (48,146 | ) | (45,444 | ) | |||||||||
| Net cash provided by (used in) financing activities | (76,792 | ) | (138,810 | ) | |||||||||
| Effect of exchange rate changes on cash | (1,383 | ) | (1,635 | ) | |||||||||
| Net increase (decrease) in cash and cash equivalents | 4,179 | (6,707 | ) | ||||||||||
| Cash and cash equivalents: | |||||||||||||
| Beginning of year | 5,412 | 12,119 | |||||||||||
| End of year | $ | 9,591 | $ | 5,412 | |||||||||