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Graco Posts Banner Sales Growth for Q4, Year

Thursday, February 3, 2011

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Global spray-systems provider Graco Inc. posted sales gains of 30% for the fourth quarter and 20% for 2010 across all regions and segments, while cutting its operating expenses as a percentage of sales.

Fourth-quarter sales increased 35% in the Americas, 33% in Europe (42% at consistent translation rates), and 37% in Asia Pacific (33% at consistent translation rates), the company reported this week.

Sales for the year increased 24% in the Americas, 25% in Europe (29% at consistent translation rates), and 46% in Asia Pacific (41% at consistent translation rates).

Return on sales was 14% for both the quarter and the year, up from 12% for the quarter and 8½% for the year in 2009.

‘Improved Results’

"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% increase in Asia Pacific."

Gross profit margin, expressed as a percentage of sales, increased to 54½% for the quarter and 54% for the year, up from 53% and 50½%, respectively, due higher production volumes, selling price increases, lower pension costs and workforce reductions.

Expenses and Earnings

Total operating expenses increased by $16 million for the quarter and $32 million for the year, due largely to higher “incentives” expense. However, operating expenses as a percentage of sales dipped by 1 percentage point to 35½% for the quarter and by 4 percentage points to 33½% for the year.

Net sales were $197.3 million for the fourth quarter, a 35% increase from the fourth quarter of 2009. Net sales were $744.1 million for all of 2010, up 28% from the 2009 total.

Diluted net earnings per common share was $0.44 for the quarter, up 57% from the $0.28 of Q4 2009; yearly earnings were $1.69, more than double that of the 2009 showing of $0.81.

Segment Results

Industrial segment sales increased by 31% for both the quarter and the year, to $113.1 million for the quarter and $409.6 million for the year. Quarterly sales growth was consistent across regions. For the year, sales increased 49% in Asia Pacific (44% at consistent translation rates), 26% in the Americas, and 24% in Europe (27% at consistent translation rates).

Higher sales and increased production volume helped improve operating earnings as a percentage of sales.

Contractor segment sales increased by 36%, to $61.6 million, for the quarter and by 23%, to $256.6 million, for the year. Fourth-quarter sales increased 35% in the Americas, 42% in Europe (52% at consistent translation rates) and 28% in Asia Pacific (24% at consistent translation rates).

For the year, sales increased 22% in the Americas and 24% in both Europe and Asia Pacific (29% in Europe and 18% in Asia Pacific at consistent translation rates). Costs and expenses related to new product introductions and expanding distribution held down operating margin percentages in this segment.

Lubrication segment sales increased by 52%, to $22.6 million, for the quarter and by 35%, to $77.9 million, for the year. Fourth-quarter sales increased 43% in the Americas, 63% in Europe and 92% in Asia Pacific.

Yearly sales increased 23% in the Americas, 56% in Europe, and doubled in Asia Pacific. Sales of industrial lubrication products contributed significantly to the segment’s strong growth and helped improve operating earnings as a percentage of sales.

Outlook: ‘Build on Momentum’

"We expect to build on momentum created in 2010," said McHale. "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."

Founded in 1926, Minneapolis, MN-based Graco manufactures fluid handling systems and components for vehicle lubrication, commercial and industrial settings. Graco provides equipment for spray finishing, protective coating, paint circulation, lubrication, and dispensing sealants and adhesives, along with power application equipment for the contractor industry.