It has been about a month since the last earnings report for Graco Inc. (GGG Quick QuoteGGG - Free Report) . Shares have added about 4.6% in that time frame, underperforming the S&P 500.

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

Graco Q3 Earnings and Revenues Surpass Estimates

Graco reported impressive results for third-quarter 2022. The company’s adjusted earnings of 66 cents per share beat the Zacks Consensus Estimate by a penny. The bottom line improved 15.8% year over year.

GGG’s net sales of $545.6 million also outperformed the Zacks Consensus Estimate of $523 million. The top line increased 12% year over year driven by solid performances in all its segments. Volume growth and effective pricing contributed to sales growth.

On a regional basis, quarterly sales generated from the Americas grew 19%. In the Europe, the Middle East and Africa (EMEA) region, sales decreased 3% year over year (or up 10% at constant currency rate). Sales from the Asia Pacific increased 10% (or up 18% at constant currency rate).

Segmental Details

Revenues for the Industrial segment totaled $156.2 million (contributing to 28.6% of the quarter’s sales), rising 1% year over year on the back of improved economic activities. Adverse foreign-currency translations lowered sales by 7%. Core sales grew 8% year over year.

Revenues in the Process segment grossed $125.4 million (contributing to 23% of the quarter’s sales), increasing 30% year over year. The improvement came on the back of a 30% rise in core sales, driven by robust demand in all regions with continued growth in lubrication equipment, process pumps, environmental and semiconductor products.

Revenues in the Contractor segment totaled $264.1 million (contributing to 48.4% of the quarter’s sales), up 12% year over year driven by outperformance in North America, robust out-the-door sales and strong demand for the protective coatings and spray foam product lines. Core sales expanded 16%.

Margin Profile

In the third quarter, Graco’s cost of sales grew 19.3% year over year to $284.6 million. Gross profit increased 5.2% to $261.1 million, while the margin decreased 3.2 percentage points. Increase in product costs due to supply-chain woes and adverse foreign-currency movements hurt the margin performance.

Operating expenses (including product development, selling, marketing and distribution; and general and administrative expenses) decreased 5% year over year to $117.5 million. The same represented 21.5% of net sales in the reported quarter compared with 25.4% in the year-ago period.

Operating income increased 14.8% year over year to $143.1 million. Operating margin remained same from the year-ago quarter. Interest expenses in the quarter totaled $1.5 million compared with $2.5 million reported in the year-ago period. Adjusted tax rate in the quarter was 27.6%.

Balance Sheet and Cash Flow

Exiting the third quarter, Graco had cash and cash equivalents of $414.8 million compared with $624.3 million at the end of 2021. The long-term debt was $75 million, flat compared with the December 2021 level.

Graco generated net cash of $271.5 million from operating activities in the first nine months of 2022 compared with $357.2 million generated in the year-ago period. Capital used for purchasing property, plant and equipment totaled $147.2 million compared with $82.6 million in the year-ago period.

GGG paid out dividends worth $106.9 million to its shareholders in the first nine months of 2022, up 12.3% from the previous-year quarter’s level. Graco repurchased shares worth $155.2 million in the first nine months of 2022.

Outlook

Amid microeconomic uncertainties, Graco expects to launch new products, explore new markets, to expand its global channel and to make strategic acquisitions. The company expects low double-digit organic revenue growth on a constant-currency basis for the full year compared with growth in high single-digit predicted earlier.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

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 D on the value side, putting it in the bottom 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Graco Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Graco Inc. belongs to the Zacks Manufacturing - General Industrial industry. Another stock from the same industry, Illinois Tool Works (ITW Quick QuoteITW - Free Report) , has gained 10.6% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

Illinois Tool Works reported revenues of $4.01 billion in the last reported quarter, representing a year-over-year change of +12.8%. EPS of $2.35 for the same period compares with $2.02 a year ago.

For the current quarter, Illinois Tool Works is expected to post earnings of $2.60 per share, indicating a change of +33.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +8.7% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Illinois Tool Works. Also, the stock has a VGM Score of D.