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Graco Reports third Quater Sales and Earnings

Published on 2009-10-27. Author : SpecialChem

MINNEAPOLIS, MN -- Graco Inc. announced results for the quarter and nine months ended September 25, 2009.

"While sales remain low compared to last year, we are pleased with the improvement in profitability over the most recent two quarters of 2009," said Patrick J. McHale, President and Chief Executive Officer. "Cash flow remains strong, and our focus on managing working capital has reduced inventories by $31 million and receivables by $21 million since the end of last year. We also reduced long-term debt by $73 million and made a voluntary $15 million tax-deductible contribution to our defined benefit pension plan. We intend to continue making targeted investments in our strategic growth initiatives while managing working capital."

Consolidated Results Sales are down 29 percent for the quarter and 33 percent year-to-date. For the quarter, sales decreased 25 percent in the Americas, 39 percent in Europe (36 percent at consistent translation rates) and 25 percent in Asia Pacific. Yearto- date sales decreased 30 percent in the Americas, 44 percent in Europe (38 percent at consistent translation rates) and 26 percent in Asia Pacific.

Gross profit margin, expressed as a percentage of sales, was 53 percent for the quarter and 50 percent year-to-date, compared to 53 percent and 54 percent, respectively, for the comparable periods last year. For the quarter, the favorable effects of pricing, lower material costs and cost reduction actions are offset by decreases from lower production volume and increased pension cost. Decreases in the year-to-date rate were due to lower production volumes (approximately 5 percentage points), unfavorable currency translation rates and increased pension cost (approximately 1 percentage point). Decreases were offset somewhat by the effects of favorable material costs and pricing.

Total operating expenses for the quarter and year-to-date are down 10 percent and 8 percent, respectively. For both the quarter and year-to-date, the effects of spending reductions and lower volume-related expenses are partially offset by higher pension expenses. Year-to-date, a $4 million decrease from translation effects is partially offset by $2 million related to workforce reductions.

Effective income tax rates were 30 percent for the quarter and 31 percent year-to-date, down from last year's rates of 34 percent for the quarter and 33 percent year-to-date. A higher-than-expected benefit upon filing of prior year tax returns contributed to lower rates in 2009. Effective rates were higher in 2008 because the R&D tax credit was not renewed until the fourth quarter and no credit was included in the provisions for the first three quarters of 2008.

Segment Results

All segments experienced double-digit percentage decreases in sales compared to last year for both the quarter and year-to-date. Improved third quarter operating earnings of all segments reflect the lower cost structure resulting from workforce and other spending reduction actions taken in the first quarter of 2009 and the fourth quarter of 2008. Year-to-date operating earnings of all segments reflect the impacts of low volume, workforce reduction costs and higher pension cost. Contractor operating results are affected by sales, costs and expenses related to the rollout of entry-level paint sprayers to additional paint and home center stores earlier in 2009 and in 2008. Mix of product sold and costs related to discontinued products contributed to lower margin rates in the Lubrication segment.

Outlook

"While economic conditions continue to create headwinds for our business, we are encouraged by improved profitablility in each of the last two quarters, resulting from our efforts to improve production costs and control expenses" said Patrick J. McHale, President and Chief Executive Officer. "We expect to continue investing in growth initiatives including product development, international expansion and entering new markets. We believe the Company will emerge from the recession with strong, profitable growth."

About Graco Inc.:

Graco Inc. supplies technology and expertise for the management of fluids in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid materials. A recognized leader in its specialties, Minneapolis-based Graco serves customers around the world in the manufacturing, processing, construction and maintenance industries.

Forward-Looking Statements

A forward-looking statement is any statement made in this earnings release and other reports that the Company files periodically with the Securities and Exchange Commission, as well as in press releases, analyst briefings, conference calls and the Company's Annual Report to shareholders, which reflects the Company's current thinking on market trends and the Company's future financial performance at the time they are made. All forecasts and projections are forward-looking statements. The Company undertakes no obligation to update these statements in light of new information or future events. The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 by making cautionary statements concerning any forward-looking statements made by or on behalf of the Company. The Company cannot give any assurance that the results forecasted in any forward-looking statement will actually be achieved. Future results could differ materially from those expressed, due to the impact of changes in various factors. These risk factors include, but are not limited to: economic conditions in the United States and other major world economies, currency fluctuations, political instability, changes in laws and regulations, and changes in product demand. Please refer to Item 1A of, and Exhibit 99 to, the Company's Annual Report on Form 10-K for fiscal year 2008 (and most recent Form 10-Q, if applicable) for a more comprehensive discussion of these and other risk factors.

Source: Graco Inc.


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