Strength in Process Segment to Aid Graco's (GGG) Q2 Earnings
Graco Inc. GGG is scheduled to release second-quarter 2023 financial numbers on Jul 26, after market close.
The Zacks Consensus Estimate for the company’s second-quarter earnings has remained steady in the past 60 days. The company has a stellar earnings surprise history, having outperformed the Zacks Consensus Estimate in each of the preceding four quarters, the average beat being 7.9%.
Highlights of Q1 Earnings
Graco’s first-quarter 2023 adjusted earnings of 74 cents per share beat the Zacks Consensus Estimate of 61 cents. Net Sales of $529.6 million also outperformed the Zacks Consensus Estimate of $499 million. While the bottom line jumped 29.8% year over year, the top line increased 7.1%. The strong performance was primarily driven by double-digit growth in the Process segment.
Process segment revenues of $133.5 million jumped 16% year over year due to a 16% rise in core sales, driven by growth across all product applications.
Graco’s primary segment — Contractor — generated revenues of $245.9 million (contributing to 46.4% of the quarter’s sales), up 5% year over year. The upside was due to a favorable response to new product offerings and improved product availability. Core sales increased 7% in the quarter.
Graco Inc. Price and EPS Surprise
Graco Inc. price-eps-surprise | Graco Inc. Quote
Factors to Note for Q2
Continued strength in the Process segment due to growth in vehicle service, industrial lubrication, process transfer pumps, environmental, and semiconductor is expected to have driven Graco’s second-quarter performance. Product launches and robust project activity in lubrication, environmental and process pumps are likely to have boosted the segment’s revenues. We expect the Process segment’s revenues to increase 9.3% from the year-ago reported figure.
We expect growth across all geographic regions of the Process segment. Process revenues in America, Europe, the Middle East and Africa and Asia Pacific regions are estimated to increase 12.3%, 4.8% and 4.3%, respectively, in the soon-to-be-reported quarter.
Strength in pro paint and high-performance coatings and foam businesses is likely to have aided the Contractor segment. Our estimate for total Contractor sales in the second quarter reflects an increase of 1.2% from the year-ago reported number.
Solid backlogs in the powder equipment systems are likely to have buoyed the Industrial segment’s performance in the to-be-reported quarter. We expect Industrial sales to inch up 3% from the year-ago reported figure.
While supply chain issues have eased significantly, raw material shortages continue to weigh on business operations. Graco has been experiencing shortages in key components, such as electronics and castings, which have prevented the backlog from returning to more normalized levels. This is likely to have dampened the company’s second-quarter performance.
Additionally, given Graco’s exposure to international markets, adverse foreign currency movements are likely to have dented its top line. For the second quarter, we expect a muted revenue growth of 3.6% compared with the year-ago reported figure. However, our estimate for the company's adjusted earnings indicates a 12.6% increase from second-quarter 2022 reported figure.
Earnings Whispers
The proven Zacks model does not conclusively predict an earnings beat for Graco this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is not the case here. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Graco is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 78 cents.
Zacks Rank: Graco currently carries a Zacks Rank #3.
Stocks to Consider
Here are some companies within the broader Industrial Products sector that you may want to consider, as according to our model, these have the right combination of elements to beat on earnings this reporting cycle.
Emerson Electric Co. EMR has an Earnings ESP of +2.35% and a Zacks Rank #2. The company is scheduled to release third-quarter fiscal 2023 (ended Jun 30, 2023) results on Aug 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Emerson pulled off a trailing four-quarter earnings surprise of 4.5%, on average. The stock has gained 5.5% in the past three months.
Allegion plc ALLE has an Earnings ESP of +3.94% and a Zacks Rank #3. The company is slated to release second-quarter 2023 results on Jul 26.
Allegion delivered a trailing four-quarter earnings surprise of 12.5%, on average. The stock has rallied 17.7% in the past three months.
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