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Graco (GGG) Q1 Earnings Lag, Down Y/Y on Forex & Cost Woes
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Graco Inc. (GGG - Free Report) reported weaker-than-expected results for the first quarter of 2019, with earnings and sales lagging respective estimates by 4.1% and 2.6%. The poor performance weakened sentiments on the stock, evident from a 0.6% price decline recorded yesterday. The closing share price was $53.01.
Adjusted earnings in the quarter under review were 47 cents per share, lagging the Zacks Consensus Estimate of 49 cents. Also, quarterly earnings decreased 2.1% from the year-ago figure of 48 cents due to forex woes and high costs. However, lower tax expenses and roughly 2.7% fall in share count were a relief.
Weak Industrial and Contractor Segments Affect Revenues
In the reported quarter, Graco’s net sales were $404.9 million, reflecting 0.3% decline over the year-ago quarter. Top-line results were adversely impacted by unfavorable movements in foreign currencies by 2%, partially offset by approximately 2% organic growth.
Also, the top line lagged the Zacks Consensus Estimate of $415.9 million.
On a geographical basis, quarterly sales generated from the Americas increased 5% while sales in EMEA declined 2% or grew 5% at constant currency rates. Sales from the Asia Pacific decreased 12% or were down 8% at constant currency rates.
The company reports revenues under three market segments. A brief discussion of the quarterly results is provided below:
Industrial’s revenues totaled $189.1 million, representing 46.7% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues declined 3.1% mainly due to unfavorable movements in foreign currencies. Organic sales and impact of acquisitions were flat in the reported quarter.
The Process segment generated revenues of $86.9 million, accounting for roughly 21.5% of net revenues in the reported quarter. Sales grew 8.6% year over year, primarily driven by 10% growth in organic sales, offset by 1% adverse impact of forex woes.
The Contractor segment generated revenues of $128.9 million, accounting for roughly 31.8% of net revenues in the reported quarter. Sales decreased 1.7% year over year due to 2% adverse impact of forex woes. Organic sales and impact of acquisitions were flat in the quarter.
High Costs and Forex Woes Hurt Margins
In the reported quarter, Graco’s cost of sales increased 2.7% year over year to $188.8 million. It represented 46.6% of the quarter’s net sales versus 45.3% in the year-ago quarter. Gross margin decreased 130 basis points (bps) to 53.4% due to the increase in costs of raw materials, unfavorable product and channel mix, and forex woes, partially offset by favorable pricing.
Operating expenses (including product development; selling, marketing and distribution; and general and administrative expenses) increased 0.7% year over year to $111.5 million. The increase in expenses was mainly due to product launch costs and investments in product development. It represented 27.5% of net sales in the reported quarter versus 27.3% in the year-ago quarter.
Operating profit declined 6.4% year over year to $104.5 million, with year-over-year decline of 170 bps in the margin to 25.8%. Interest expenses in the reported quarter increased 9.3% year over year to $3.5 million. Adjusted effective tax rate in the quarter was 20.5%, down from 21.7% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting the first quarter, Graco had cash and cash equivalents of $119.7 million, down 9.4% from $132.1 million recorded in the last reported quarter. Long-term debt was down 34.8% sequentially to $173.7 million.
In the reported quarter, the company generated net cash of $50.5 million from operating activities, roughly 14% below the year-ago figure. Capital spent on the addition of property, plant and equipment totaled $30.4 million versus $9 million in the year-ago quarter.
During the quarter under review, the company distributed $26.4 million worth dividends and repurchased shares for $2.4 million.
Outlook
For 2019, Graco anticipates benefiting from product launches in the Contractor segment as well as from pricing actions. Organic sales (at constant currency) are predicted to grow in a mid-single digit. Segmental and geographical results are also anticipated to flourish.
In the past 60 days, earnings estimates for all the three stocks have improved for the current year. Further, average earnings surprise for the last four quarters was positive 46.55% for DXP Enterprises, 2.27% for Sun Hydraulics and 4.96% for Roper.
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Graco (GGG) Q1 Earnings Lag, Down Y/Y on Forex & Cost Woes
Graco Inc. (GGG - Free Report) reported weaker-than-expected results for the first quarter of 2019, with earnings and sales lagging respective estimates by 4.1% and 2.6%. The poor performance weakened sentiments on the stock, evident from a 0.6% price decline recorded yesterday. The closing share price was $53.01.
Adjusted earnings in the quarter under review were 47 cents per share, lagging the Zacks Consensus Estimate of 49 cents. Also, quarterly earnings decreased 2.1% from the year-ago figure of 48 cents due to forex woes and high costs. However, lower tax expenses and roughly 2.7% fall in share count were a relief.
Weak Industrial and Contractor Segments Affect Revenues
In the reported quarter, Graco’s net sales were $404.9 million, reflecting 0.3% decline over the year-ago quarter. Top-line results were adversely impacted by unfavorable movements in foreign currencies by 2%, partially offset by approximately 2% organic growth.
Also, the top line lagged the Zacks Consensus Estimate of $415.9 million.
On a geographical basis, quarterly sales generated from the Americas increased 5% while sales in EMEA declined 2% or grew 5% at constant currency rates. Sales from the Asia Pacific decreased 12% or were down 8% at constant currency rates.
The company reports revenues under three market segments. A brief discussion of the quarterly results is provided below:
Industrial’s revenues totaled $189.1 million, representing 46.7% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues declined 3.1% mainly due to unfavorable movements in foreign currencies. Organic sales and impact of acquisitions were flat in the reported quarter.
The Process segment generated revenues of $86.9 million, accounting for roughly 21.5% of net revenues in the reported quarter. Sales grew 8.6% year over year, primarily driven by 10% growth in organic sales, offset by 1% adverse impact of forex woes.
The Contractor segment generated revenues of $128.9 million, accounting for roughly 31.8% of net revenues in the reported quarter. Sales decreased 1.7% year over year due to 2% adverse impact of forex woes. Organic sales and impact of acquisitions were flat in the quarter.
High Costs and Forex Woes Hurt Margins
In the reported quarter, Graco’s cost of sales increased 2.7% year over year to $188.8 million. It represented 46.6% of the quarter’s net sales versus 45.3% in the year-ago quarter. Gross margin decreased 130 basis points (bps) to 53.4% due to the increase in costs of raw materials, unfavorable product and channel mix, and forex woes, partially offset by favorable pricing.
Operating expenses (including product development; selling, marketing and distribution; and general and administrative expenses) increased 0.7% year over year to $111.5 million. The increase in expenses was mainly due to product launch costs and investments in product development. It represented 27.5% of net sales in the reported quarter versus 27.3% in the year-ago quarter.
Operating profit declined 6.4% year over year to $104.5 million, with year-over-year decline of 170 bps in the margin to 25.8%. Interest expenses in the reported quarter increased 9.3% year over year to $3.5 million. Adjusted effective tax rate in the quarter was 20.5%, down from 21.7% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting the first quarter, Graco had cash and cash equivalents of $119.7 million, down 9.4% from $132.1 million recorded in the last reported quarter. Long-term debt was down 34.8% sequentially to $173.7 million.
In the reported quarter, the company generated net cash of $50.5 million from operating activities, roughly 14% below the year-ago figure. Capital spent on the addition of property, plant and equipment totaled $30.4 million versus $9 million in the year-ago quarter.
During the quarter under review, the company distributed $26.4 million worth dividends and repurchased shares for $2.4 million.
Outlook
For 2019, Graco anticipates benefiting from product launches in the Contractor segment as well as from pricing actions. Organic sales (at constant currency) are predicted to grow in a mid-single digit. Segmental and geographical results are also anticipated to flourish.
Graco Inc. Price, Consensus and EPS Surprise
Graco Inc. Price, Consensus and EPS Surprise | Graco Inc. Quote
Zacks Rank & Stocks to Consider
With a market capitalization of roughly $8.8 billion, Graco currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the industry are DXP Enterprises, Inc. (DXPE - Free Report) , Sun Hydraulics Corporation and Roper Technologies, Inc. (ROP - Free Report) . All these stocks currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for all the three stocks have improved for the current year. Further, average earnings surprise for the last four quarters was positive 46.55% for DXP Enterprises, 2.27% for Sun Hydraulics and 4.96% for Roper.
Radical New Technology Creates $12.3 Trillion Opportunity
Imagine buying Microsoft stock in the early days of personal computers… or Motorola after it released the world’s first cell phone. These technologies changed our lives and created massive profits for investors.
Today, we’re on the brink of the next quantum leap in technology. 7 innovative companies are leading this “4th Industrial Revolution” - and early investors stand to earn the biggest profits.
See the 7 breakthrough stocks now>>