Graco Inc. (GGG) Up 3.1% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Graco Inc. (GGG). Shares have added about 3.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Graco Inc. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Graco Q4 Earnings & Sales Beat Estimates, Increase Y/Y
Graco Inc.’s fourth-quarter 2023 adjusted earnings of 80 cents per share surpassed the Zacks Consensus Estimate of 79 cents. The bottom line improved 10% year over year due to solid momentum in the Industrial, Process and Contractor segments.
The company’s net sales of $566.6 million managed to beat the consensus estimate of $566 million. The top line also increased 2% year over year.
On a regional basis, quarterly sales generated from the Americas increased 3% year over year. In Europe, the Middle East and Africa (EMEA), sales increased 5% year over year. Sales from the Asia Pacific decreased 5% year over year.
Segmental Details
Revenues in the Industrial segment totaled $192 million (contributing to 33.9% of the quarter’s sales), rising 1% year over year, driven by end-market strength in the Americas. However, this was partially offset by low finishing system sales in the EMEA and Asia Pacific regions. Our estimate for segmental revenues was $197.7 million. Favorable foreign currency translations increased sales by 2%. Core sales declined 1% year over year.
Revenues in the Process segment grossed $135.9 million (contributing to 24% of the quarter’s sales), increasing 4% year over year. Our estimate for the segment’s revenues was $145.8 million. The improvement came on the back of a 4% rise in core sales.
Revenues in the Contractor segment totaled $238.8 million (contributing to 42.1% of the quarter’s sales), up 2% year over year, supported by positive responses from new product offerings. However, the gains were partially offset by slower economic activity in construction markets. Our estimate for segmental revenues was $223.5 million. Core sales improved 1% in the quarter. Favorable foreign currency translations increased sales by 1%.
Margin Profile
In the fourth quarter, Graco’s cost of sales declined 5.5% year over year to $266.7 million. Gross profit increased 9.9% to $299.9 million, while the margin rose 4 percentage points. The favorable effects of realized pricing and lower product costs benefited the margin’s performance.
Operating income increased 11.4% year over year to $169.9 million. The operating margin increased 3 percentage points from the year-ago quarter. Interest expenses in 2023 totaled $5.2 million compared with $9.9 million reported in the previous year. The adjusted effective tax rate in the quarter was 14%, while the same for 2023 was 17%.
Balance Sheet and Cash Flow
Exiting the fourth quarter, Graco had cash and cash equivalents of $538 million compared with $339.2 million at the end of 2022.
It generated net cash of $651 million from operating activities in 2023 compared with $377.4 million generated in the year-ago period. Capital used for purchasing property, plant and equipment totaled $184.8 million compared with $201.2 million in the year-ago period.
GGG paid out dividends worth $158.3 million to its shareholders in 2023, up 11.4% from the previous year. It repurchased common stocks worth $102.3 million in 2023.
Outlook
The company remains focused on its core strategies, including new product introduction, accessing new markets and targeting strategic acquisitions to enhance shareholder value. It expects low single-digit organic revenue growth on a constant-currency basis for 2024.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
At this time, Graco Inc. has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Graco Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Graco Inc. belongs to the Zacks Manufacturing - General Industrial industry. Another stock from the same industry, Applied Industrial Technologies (AIT), has gained 3.7% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
Applied Industrial Technologies reported revenues of $1.08 billion in the last reported quarter, representing a year-over-year change of +1.6%. EPS of $2.24 for the same period compares with $2.05 a year ago.
Applied Industrial Technologies is expected to post earnings of $2.38 per share for the current quarter, representing no change from the year-ago quarter. Over the last 30 days, the Zacks Consensus Estimate has changed +0.4%.
Applied Industrial Technologies has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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