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Graco Inc. (GGG) Down 7.2% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Graco Inc. (GGG - Free Report) . Shares have lost about 7.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Graco Inc. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Graco Earnings Beat Estimates in Q4 on Solid Sales

Graco reported better-than-expected results for fourth-quarter 2020, with earnings and sales surpassing respective estimates by 19.61% and 9.78%. Notably, this was the third earnings beat in a row for the company.

Adjusted earnings in the quarter under review were 61 cents per share, surpassing the Zacks Consensus Estimate of 51 cents. On a year-over-year basis, earnings increased 27.1%, driven by healthy sales generation and improved margins.

For 2020, the company’s adjusted earnings were $1.95 per share, up 2.6% from the previous year.

Revenue Details

In the reported quarter, the company’s net sales were $470.3 million, suggesting a 14.1% growth from the year-ago quarter. Volume and price boosted sales by 11%, acquisition added 1%, and movements in foreign currencies had a positive impact of 2%.

Also, the company’s net sales surpassed the Zacks Consensus Estimate of $428 million.

On a geographical basis, quarterly sales generated from the Americas grew 15% to $267 million. In the Europe, Middle East and Africa region, sales were $120 million, increasing 7% year over year (or grew 1% at a constant-currency rate), while sales from the Asia Pacific were $83 million, increasing 22% year over year (or up 17% at a constant-currency rate).

The company reports revenues under three segments. A brief discussion of the quarterly results is provided below:

The Industrial segment’s revenues totaled $212.9 million, reflecting a 9.3% increase from the year-ago quarter. Volume and price had a positive impact of 6% on sales, while movements in foreign currencies benefitted by 3%. The segment’s sales accounted for 45.2% of the company’s net revenues in the quarter.

The Process segment’s sales of $83.5 million were down 6.1% from the year-ago quarter. Acquisitions contributed 3% to sales growth, while volume and price had an adverse impact of 10% in the quarter. Movements in foreign currencies increased sales by 1%. The segment’s sales accounted for 17.8% of net revenues in the reported quarter.

The Contractor segment’s revenues increased 35.2% year over year to $173.9 million. The improvement was driven by a 33% contribution from volume and price as well as movements in foreign currencies boosted it by 2%. The segment’s sales accounted for 37% of net revenues in the reported quarter.

The company noted that demand was strong from home center and professional paint channels.

In 2020, the company’s net sales were $1,650.1 million, increasing 0.2% from the previous quarter.

Margin Profile

In the reported quarter, Graco’s cost of sales grew 11.1% year over year to $225.5 million. It represented 48% of the quarter’s net sales versus 49.2% in the year-ago quarter. Gross profit increased 16.9% year over year to $244.8 million, while margin was up 130 basis points (bps) to 52.1%. The margin improvement was triggered by sales volume improvement in the Industrial segment, solid price realization and forex tailwinds. However, channel and product mix were spoilsports in the Contractor segment.

Operating expenses (including product development; selling, marketing and distribution; and general and administrative expenses) increased 7.1% year over year to $112.7 million. It represented 24% of net sales in the reported quarter versus 25.5% in the year-ago quarter.

Adjusted operating profit increased 26.8% year over year to $132.1 million on the back of forex tailwinds and a rise in volumes. Operating margin, adjusted, increased 280 bps year over year to 28.1%.

Interest expenses in the reported quarter increased 1.8% year over year to $2.6 million. Effective tax rate (adjusted) in the quarter was 18.1%, down 40 bps from the prior-year quarter.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Graco had cash and cash equivalents of $378.9 million, reflecting a 10.8% decrease from $424.7 million recorded in the last reported quarter. Long-term debt slipped 45.5% sequentially at $150 million.

In 2020, the company generated net cash of $394 million from operating activities, reflecting a decline of 5.9% from the previous year. Capital spent on the addition of property, plant and equipment totaled $71.3 million versus $128 million in 2019.

The company distributed dividends worth $117 million and repurchased shares worth $102.1 million during 2020.



Graco expects to witness challenges in multiple end markets in the first half of 2021. The company mentioned that conditions will be solid for the Contractor segment in the year.

For 2021, it refrained from providing sales or earnings projections. On the contrary, it did mention that capital expenditure for the year will be $115 million (including $80 million for the expansion of facilities).

Corporate expenses (unallocated) are estimated to be $30 million. Impacts of movements in foreign currencies are expected to boost sales and earnings by 2% and 6%, respectively, in the year.

Effective tax rate for the year is predicted to be 18-19%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 7.31% due to these changes.

VGM Scores

At this time, Graco Inc. has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Graco Inc. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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