It has been about a month since the last earnings report for Graco Inc. (GGG Quick QuoteGGG - Free Report) . Shares have added about 8.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Graco due for a pullback? 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’s Earnings Miss Estimates in Q3, Sales Decline 4% Y/Y

Graco’s third-quarter 2024 adjusted earnings of 71 cents per share missed the Zacks Consensus Estimate of 76 cents. The bottom line declined 8% year over year.

The company’s net sales of $519.2 million missed the consensus estimate of $535 million. The top line fell 4% year over year due to lower demand in all the segments.

On a regional basis, quarterly sales generated from the Americas increased 1% year over year. In Europe, the Middle East and Africa, sales decreased 2% year over year. Sales from the Asia Pacific decreased 21% year over year.

Segmental Details of Graco

Net sales in the Industrial segment totaled $156.3 million (contributing to 30.1% of the quarter’s sales), which decreased 1% year over year. Forex woes lowered sales by 1% year over year. Our estimate for segmental net sales was $191.8 million.

Net sales in the Process segment grossed $120.6 million (contributing to 23.2% of the quarter’s sales), down 12% year over year. Our estimate for the segment’s net sales was $131.6 million. Core sales declined 12% year over year.

Net sales in the Contractor segment totaled $242.3 million (contributing to 46.7% of the quarter’s sales), down 1% year over year. Our estimate for segmental net sales was $236.5 million. Core sales increased 1%.

Margin Profile of Graco

In the third quarter, Graco’s cost of sales declined 4.7% year over year to $243.1 million. Gross profit decreased 3% to $276.1 million while the margin rose 0.5 percentage points. The favorable effects of realized pricing benefited the margin’s performance.

Operating income decreased 10.7% year over year to $145.7 million. The operating margin decreased 2.1 percentage points from the year-ago quarter. Interest expenses totaled $0.7 million compared with $1.4 million in the previous year’s quarter. The adjusted effective tax rate was 19.2% compared with the year-ago quarter’s 19.6%.

Balance Sheet and Cash Flow

Exiting the third quarter, Graco had cash and cash equivalents of $764.5 million compared with $538 million at the end of 2023.

It generated net cash of $436.5 million from operating activities in the first nine months of 2024 compared with $491.4 million generated in the year-ago period. Capital used for purchasing property, plant and equipment totaled $92.8 million compared with $145.6 million in the year-ago period.

Graco paid out dividends worth $129 million to its shareholders in the first nine months of the year, up 8.7% from the previous year. It repurchased shares worth $31.4 million in the same period.

Outlook

The company expects organic net sales to decline in the low single-digits on a constant-currency basis in 2024.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Graco 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 D. 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. It's no surprise Graco has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.