Graco Inc. (GGG) Down 5.1% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Graco Inc. (GGG). Shares have lost about 5.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Graco Inc. due for a breakout? 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 catalysts.
Graco Q2 Earnings Miss Estimates, Revenues Rise Y/Y
Graco’s second-quarter 2023 adjusted earnings of 75 cents per share missed the Zacks Consensus Estimate of adjusted earnings of 78 cents per share. The bottom line improved 10.3% year over year.
GGG’s net sales of $560 million also underperformed the consensus estimate of $573 million. The top line increased 2% year over year driven by double-digit growth in the Process segment.
On a regional basis, quarterly sales generated from the Americas grew 2%. In Europe, the Middle East and Africa (EMEA) region, sales increased 7% year over year. However, sales from the Asia Pacific decreased 4% year over year.
Segmental Details
Revenues in the Industrial segment totaled $163.5 million (contributing to 29.2% of the quarter’s sales), rising 3% year over year, driven by solid growth in the Americas and EMEA regions. Our estimate for segmental revenues was $163.2 million. Adverse foreign currency translations lowered sales by 1%. Core sales grew 4% year over year.
Revenues in the Process segment grossed $140.5 million (contributing to 25.2% of the quarter’s sales), increasing 13% year over year. Our estimate for segmental revenues was $136.1 million. The improvement came on the back of a 14% rise in core sales, driven by growth in the automatic lubrication, vehicle service and semiconductor product applications.
Revenues in the Contractor segment totaled $255.6 million (contributing to 45.6% of the quarter’s sales), down 4% year over year due to slower economic activity in construction markets in the Americas and Asia Pacific. Our estimate for segmental revenues was $269 million. Core sales declined 3% in the quarter.
Margin Profile
In the second quarter, Graco’s cost of sales declined 4% year over year to $268.2 million. Gross profit increased 8.3% to $291.4 million, while the margin increased 3.1 percentage points. The favorable effects of realized pricing and product and channel mix benefited the margin’s performance.
Operating income increased 6% year over year to $157.1 million. The operating margin increased 1 percentage point from the year-ago quarter. Interest expenses in the quarter totaled $1.8 million, compared with $1.7 million reported in the year-ago period. The adjusted effective tax rate in the quarter was 16%.
Balance Sheet and Cash Flow
Exiting the second quarter, Graco had cash and cash equivalents of $520.6 million, compared with $339.2 million at the end of 2022.
Graco generated net cash of $282.3 million from operating activities in the first six months of 2023, compared with $135 million generated in the year-ago period. Capital used for purchasing property, plant and equipment totaled $92.2 million, compared with $88.9 million in the year-ago period.
GGG paid out dividends worth $79 million to its shareholders in the first six months of 2023, up 10.7% from the previous year. Graco repurchased common stocks worth $7.8 million in the first six months of 2023.
Outlook
The company expects low single-digit organic revenue growth on a constant-currency basis for 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
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 an F. Charting a somewhat similar path, 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Graco Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Graco Inc. (GGG) : Free Stock Analysis Report
