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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. |