Graco Beats on Strong Sales

Graco Inc. (GGG - Snapshot Report) posted a net income of $36.6 million or $0.60 per share compared to a net income of $38.1 million or $0.61 per share in the previous quarter and a net income of $30.4 million or $0.50 per share in the year-ago quarter. The results beat the Zacks Consensus Estimate of $0.57. 

Revenues

Net sales came in at $227.3 million, up 20% from the year-ago quarter driven by broad-based growth in all segments and regions. The net sales reported in the quarter included 4 percentage points from currency translation.

On a segmental basis, Industrial segment sales improved 25% from the year-earlier quarter to $124.5 million. Revenues from Contractor segment sales were $77.8 million, up 11% from the year-ago quarter. Lubrication segment sales soared 23% from the year-ago quarter to $25.1 million.

Geographically, sales were up 13% from the year-ago quarter in the Americas, 18% from the year-ago quarter in Europe (10% at consistent translation rates), and 41% from the year-ago quarter in Asia Pacific (34% at consistent translation rates).

Margins

Gross margin came in at 56%, down from 56.5% in the year-ago quarter. The favorable effects of translation and higher volume were partially offset by higher material costs. Operating margin moved up to 25.0% from 24.8% in the previous quarter.

Balance Sheet and Cash Flows

Graco ended the quarter with cash and cash equivalents of $274.8 million, up from $119.3 million at the end of the previous quarter.  As of September 30, 2011, long-term debt came in at $300 million, up from $150 million at the previous quarter end.

During the first nine months, Graco generated $108.8 million of cash from operating activities and used $17.4 million for capital expenditures.

Outlook

Management states that the incoming orders remained strong on a world-wide basis, particularly in Asia Pacific. For the fourth quarter of 2011, LSI Corp continues to expect global demand to be generally favorable on a year over year basis with the exception of U.S. housing and commercial construction markets.

The company remains cautious regarding demand trends in Europe and continues to inspect any order impact resulting from the Eurozone financial crisis. Graco expects that fourth quarter growth trends will be lower due to difficult comparisons on a year-ago basis and an additional week of shipment that occurred in the fourth quarter of 2010.

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). Earlier this month, both Graco and ITW submitted responses to the FTC`s request for additional information in their review of the acquisition.

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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