Graco (GGG) Q2 Earnings & Revenues Beat Estimates, Rise Y/Y

Graco Inc.’s GGG second-quarter 2022 adjusted earnings of 68 cents per share beat the Zacks Consensus Estimate by a penny. The bottom line improved 10% year over year.

GGG’s net sales of $549 million also outperformed the Zacks Consensus Estimate of $535 million. The top line increased 8% year over year driven by solid performances in the Industrial and Process segments. Volume growth and effective pricing contributed to sales growth.

On a regional basis, quarterly sales generated from the Americas grew 12%. In the Europe, the Middle East and Africa (EMEA) region, sales decreased 5% year over year (or up 5% at constant currency rate). Sales from the Asia Pacific increased 12% (or up 16% at constant currency rate).

Graco Inc. Price, Consensus and EPS Surprise

Graco Inc. Price, Consensus and EPS Surprise

Graco Inc. price-consensus-eps-surprise-chart | Graco Inc. Quote

Segmental Details

Revenues for the Industrial segment totaled $144.67 million (contributing to 28.9% of the quarter’s sales), rising 9.6% year over year on the back of improved economic activities. Adverse foreign-currency translations lowered sales by 5%. Core sales grew 15% year over year.

Revenues in the Process segment grossed $124.48 million (contributing to 22.7% of the quarter’s sales), increasing 28% year over year. The improvement came on the back of a 27% rise in core sales, driven by volumes and sales growth in all product applications.

Revenues in the Contractor segment totaled $265.74 million (contributing to 48.4% of the quarter’s sales), up slightly year over year. Performance was hurt by components shortages and cost inflation. Core sales expanded 3%. Reduced demand in  Asia Pacific due to pandemic-related shutdowns and decreases in EMEA region hurt sales.

It is to be noted that Graco started reporting its high-performance coatings and foam product offerings under the Contractor segment starting first-quarter 2022. Earlier, these businesses were reported under the Industrial Segment’s Applied Fluid Technologies division.

Margin Profile

In the second quarter, Graco’s cost of sales grew 14.8% year over year to $279.49 million. Gross profit increased 2% to $269.06 million, while the margin decreased 3 percentage points. Increase in product costs due to supply-chain woes, inflationary pressure, and adverse foreign-currency movements hurt the margin performance.

Operating expenses (including product development, selling, marketing and distribution; and general and administrative expenses) decreased 7% year over year to $120.38 million. The same represented 8.9% of net sales in the reported quarter compared with 8.1% in the year-ago period.

Operating income increased 11.1% year over year to $148.68 million. Operating margin increased to 27.1% from 26.4% in the year-ago quarter. Interest expenses in the quarter totaled $1.73 million compared with $2.53 million reported in the year-ago period. Adjusted tax rate in the quarter was 20%.

Balance Sheet and Cash Flow

Exiting the second quarter, Graco had cash and cash equivalents of $413.36 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 $134.99 million from operating activities in the first six months of 2022 compared with $220.05 million generated in the year-ago period. Capital used for purchasing property, plant and equipment totaled $88.86 million compared with $54.76 million in the year-ago period.

GGG paid out dividends worth $71.34 million to its shareholders in the first six months of 2022, up 12.5% from the previous-year quarter’s level. Graco repurchased shares worth $120 million in the first six months of 2022.

Outlook

Graco expects weakness in end markets in the EMEA region to hurt its performance in the remainder of the year. The company continues to expect high single-digit organic revenue growth on a constant-currency basis for the full year.

Zacks Rank & Key Picks

Graco carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering are as follows:

Griffon Corporation GFF sports a Zacks Rank #1 (Strong Buy). The company has an impressive earnings surprise history having outperformed the Zacks Consensus Estimate in three of the preceding four quarters, while missing in one. The average beat was 97%. You can see the complete list of today’s Zacks #1 Rank stocks.

Griffon has an estimated earnings growth rate of 117.6% for the current year. The stock gained 16.3% in a year’s time.

Greif GEF sports a Zacks Rank #1. The company’s earnings have surpassed the Zacks Consensus Estimate in each of the preceding four quarters, the average beat being 22.9%.

Greif has an estimated earnings growth rate of 36.8% for the current year. Shares of the company have rallied 15.2% in a year.

Titan International TWI flaunts a Zacks Rank #1. The company’s earnings have outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 56.4%.

Titan International has an estimated earnings growth rate of 164.7%. Shares of the company have surged 94.8% in a year.

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