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Graco Inc. (GGG - Snapshot Report) posted a net income of $38.1 million or 61 cents per share in the second quarter of fiscal 2011 compared with a net income of $24.8 million or 41 cents per share in the year-earlier quarter. The results missed the Zacks Consensus Estimate of 67 cents. 

Revenues

Net sales came in at $234.7 million, up 22% from the year-earlier quarter, attributable to improved economic conditions, successful new product launches and expansion of business outside North America.

On a segmental basis, Industrial segment sales improved 29% from the year-earlier quarter to $129.3 million. Revenues from Contractor segment sales were $80.7 million, up 9% from the year-earlier quarter. Lubrication segment sales soared 38% from the year-earlier quarter to $24.7 million.

Geographically, sales were up 22% from the year-earlier quarter in the Americas, 32% from the year-earlier quarter in Europe (21% at consistent translation rates), and 34% from the year-earlier quarter in Asia Pacific (27% at consistent translation rates).

Margins

Gross margin improved 300 basis points year over year to 56.5%, a result of higher volume, translation, and selling price increases partially offset by higher material costs.

Operating margin moved up to 24.8% in the quarter from 20.4% in the year-earlier quarter, driven by an increase in margins across all segments.

Management stated that the improvement in margins was led by Graco’s investments in innovation, technology, business development and geographic expansion, which underscore the company’s strategic growth policy.

Balance Sheet and Cash Flows

Graco ended the quarter with cash and cash equivalents of $119.3 million, up $16.8 million from the end of the previous quarter. As of July 1, 2011, long-term debt remained static at $150 million from the previous quarter end.

During the quarter, the company generated $29.7 million of cash from operating activities and used $5 million for capital expenditure.

Outlook

For the second half of 2011, management expects market conditions to be generally favorable for Graco, barring the U.S. housing and commercial construction markets.

Meanwhile, Graco will continue to cooperate with the Federal Trade Commission (FTC) for obtaining the approval for acquiring the finishing businesses of Illinois Tool Works Inc. ((ITW - Analyst Report)).

Headquartered in Minneapolis, Minnesota, Graco supplies technology for management of fluids in both industrial and commercial applications. Its products are used for the application of paints and coatings, for high-pressure cleaning of equipment, and the lubrication and maintenance of vehicles and other equipment.

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