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Graco (GGG) Q4 Earnings In Line With Estimates, Rise Y/Y

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Graco Inc. GGG reported in-line results for the fourth quarter of 2018 as well as for the full year.

Adjusted earnings in the quarter under review were 43 cents per share, in line with the Zacks Consensus Estimate. However, quarterly earnings increased 26% from the year-ago tally of 34 cents on the back of solid revenue growth, lower tax expenses and roughly 2.7% fall in share count.

In 2018, Graco’s adjusted earnings were $1.8 per share, in line with the Zacks Consensus Estimate. On a year-over-year basis, the bottom line increased 31% from $1.43 in 2017.

Organic Growth and Acquired Assets Drive Revenues

Graco’s net sales were $406.4 million in the fourth quarter, reflecting 8% growth over the year-ago quarter. This improvement was primarily driven by 8% organic growth and 2% gain from acquired assets, partially offset by 2% (or $5 million) adverse impact of unfavorable movements in foreign currencies.

Further, the top line surpassed the Zacks Consensus Estimate of $404.3 million by 0.5%.

On a geographical basis, the quarterly sales generated from the Americas increased 6%, EMEA grew 11% or 14% at constant currency rates, and the Asia Pacific improved 13% or 16% at constant currency rates.

The company reports revenues under three market segments. A brief discussion of the quarterly results is provided below:

Industrial’s revenues totaled $199.5 million, representing 49.1% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues grew 9% on the back of 7% gain from organic sales and 4% benefit from acquisitions. This was partially offset by 2% adverse impact of unfavorable movements in foreign currencies.

The Process segment generated revenues of $88.3 million, accounting for roughly 21.7% of net revenues in the reported quarter. Sales grew 14% year over year, primarily driven by 15% growth in organic sales, offset by 1% adverse impact of forex woes.

The Contractor segment generated revenues of $118.6 million, accounting for roughly 29.2% of net revenues in the reported quarter. Sales grew 3% year over year, primarily driven by 4% growth in organic sales, partially offset by 1% adverse impact of forex woes.

For 2018, the company’s net sales were $1,653.3 million, up 12% year over year. The top line, however, was in line with the Zacks Consensus Estimate.

Margin Declines Year over Year

In the reported quarter, Graco’s cost of sales increased 13.6% year over year to $197.7 million. Cost of sales was 48.6% of the quarter’s net sales versus 46.4% in the year-ago quarter. Gross margin decreased 220 basis points (bps) to 51.4% due to the increase in costs of raw materials, unfavorable product mix, tariffs and factory spending.

Operating expenses (including product development; selling, marketing and distribution; and general and administrative expenses) increased 0.8% year over year to $112.2 million. It represented 27.6% of net sales in the reported quarter versus 29.7% in the year-ago quarter.

Operating profit grew 7.9% year over year to $96.6 million, with year-over-year decline of 10 bps in the margin to 23.8%. Interest expenses in the quarter decreased 10.1% year over year to $3.7 million. Effective tax rate in the quarter was 18%, down roughly 32 percentage points year over year.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Graco had cash and cash equivalents of $132.1 million, down 4% from $132.1 million recorded in the last reported quarter. Long-term debt was flat sequentially at $266.4 million.

In 2018, the company generated net cash of $368 million from operating activities, roughly 8.9% higher than the year-ago tally. Capital spent on the addition of property, plant and equipment totaled $53.9 million versus $40.2 million in the previous year.

During the year, the company distributed $88.8 million as dividends and repurchased 5.7 million shares for $244.8 million.

Outlook

For 2019, Graco anticipates gaining from healthy demand for its products across all operating regions. Organic sales are predicted to grow in a mid-single digit. Segmental results are also anticipated to flourish.

Graco Inc. Price, Consensus and EPS Surprise

 

Graco Inc. Price, Consensus and EPS Surprise | Graco Inc. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of roughly $7 billion, Graco currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are DXP Enterprises, Inc. DXPE, Twin Disc, Incorporated TWIN and Colfax Corporation CFX. While DXP Enterprises currently sports a Zacks Rank #1 (Strong Buy), Twin Disc and Colfax carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings estimates for DXP Enterprises and Colfax for 2019, and that for Twin Disc for fiscal 2019 (ending June 2019) improved over the past 60 days. Positive earnings surprise for the last four quarters was 112.62% for DXP Enterprises, 220.64% for Twin Disc and 8.88% for Colfax.

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