Exhibit 99.1
FOR IMMEDIATE RELEASE: | FOR FURTHER INFORMATION: |
Monday, October 24, 2005 | Mark W. Sheahan (612) 623-6656 |
GRACO REPORTS RECORD THIRD QUARTER RESULTS
NET SALES INCREASE 19 PERCENT
NET EARNINGS INCREASE 7 PERCENT
MINNEAPOLIS, MN (October 24, 2005)— Graco Inc.(NYSE: GGG) today announced third quarter net earnings of $30.9 million on net sales of $176.9 million — increases over the prior year of 7 percent and 19 percent, respectively. Diluted net earnings per share were $0.44 versus $0.41 last year, a 7 percent increase. For the first nine months, Graco reported net earnings of $93.6 million on net sales of $546.1 million – increases over the prior year of 15 percent and 23 percent, respectively.
For both the third quarter and on a year-to-date basis, the sales growth rate exceeded the net earnings growth rate as a result of acquisitions. Acquired operations contributed 11 percentage points of sales growth for the quarter and attained breakeven operating results. Year-to-date sales include 11 percentage points of revenue growth from acquired operations.
When compared to the third quarter of 2004, worldwide Contractor Equipment Division sales of $75.3 million increased 10 percent. In the Americas, growth came from sales to professional paint stores. In the professional paint channel, new product sales and overall business tempo remained robust in the third quarter. In the home center channel, sales were slightly lower than last year’s third quarter as a result of changes in inventory stocking practices at Home Depot. Out-the-door sales remain strong at Home Depot and year-to-date sales in both channels are still up double-digits from last year. In addition to the growth in the Americas, Europe continued to impress with another double-digit increase in sales, a continuation of what was experienced in the first half of this year.
Third quarter Industrial/Automotive Equipment Division sales of $88.1 million increased 31 percent versus the same period last year. Acquired businesses contributed 24 percentage points of the increase. The remaining 7 percent increase was driven by growth in all three regions including growth in Europe and a double-digit increase in Asia Pacific. Year-to-date sales were up in all of the major product categories. Year-to-date sales are higher in all three regions and overall business tempo remains solid heading into the fourth quarter of the year.
Third quarter sales for the Lubrication Equipment Division were $13.6 million, up 3 percent from last year. Revenue gains continued in all three regions despite difficult comparisons to last year’s record third quarter results. Lubrication products such as pumps, meters and reels all showed increases over the prior year.
Third quarter sales in the Americas increased 17 percent to $117.6 million, with continued growth in all three segments. Acquired businesses contributed 11 percentage points of the increase. In Europe, net sales of $36.4 million were 23 percent higher than the third quarter of 2004. Acquired businesses contributed 10 percentage points of the increase; the remaining increase in Europe was primarily driven by growth in the Contractor Equipment and Industrial/Automotive segments. In Asia Pacific, net sales of $22.9 million were 21 percent higher than the third quarter of 2004. Acquired businesses contributed 11 percentage points of the increase; the remaining increase was primarily driven by robust Industrial/Automotive Equipment business.
Graco’s gross profit margin, expressed as a percentage of sales, was 53.5 percent for the third quarter, up 190 basis points from the second quarter but below last year’s gross profit margin of 55.1 percent. When compared to last year’s third quarter, the lower gross profit margin rate can be attributed to the acquisitions. Before the effects of acquisitions, third quarter gross profit rate was higher than last year.
Graco’s operating profit margin, expressed as a percentage of sales, was 26.5 percent for the third quarter, versus 29 percent last year. Operating expenses, when expressed as a percentage of net sales, increased by 90 basis points from last year’s third quarter. The increase in operating expenses as a percentage of sales and the overall decline in operating profit margin from last year can be attributed to the acquisitions. Before the effects of acquisitions, third quarter operating profit margin was higher than last year’s.
When compared to 2004 results, the U.S. dollar versus foreign currencies helped to increase year-to-date net earnings and net sales. Translated at consistent exchange rates, year-to-date net earnings and net sales increased by 12 percent and 22 percent, respectively. The impact of currency translation rates on the third quarter was negligible.
“Graco continues to experience strong growth from our core businesses this year with increases in sales, net earnings and earnings per share,” said President and Chief Executive Officer David A. Roberts. “Sales in all three regions and all three divisions continued to grow even before the favorable impacts of currency translations and acquisitions. After a softer than anticipated July, our incoming order rates bounced back in August and September leading to an increase in backlog at the end of the period. Our backlog stands at $39 million at the end of the third quarter, up $4 million from the second quarter and $21 million from the end of last year. Our Industrial/Automotive Equipment division continues to experience growth across all regions before the favorable impact of acquisitions. In the Contractor segment, growth has been driven by a combination of new product introductions, favorable housing conditions in North America and higher sales in Europe. Our sales in the Lubrication Equipment segment have enjoyed solid gains this year. The two recent acquisitions are contributing to our sales and cash flow and we are working diligently to execute our plans for improvements in the profitability of these businesses. As we move forward with our integration efforts to align the acquired companies with Graco’s global platform, we are encouraged by the amount of improvements that can be made and the level of commitment we are receiving from employees, customers and distributors. We continue to be optimistic about the remainder of 2005 and our prospects for next year.”
Cautionary Statement Regarding Forward-Looking Statements
A forward-looking statement is any statement made in this earnings release and other reports that the Company files periodically with the Securities and Exchange Commission, as well as in press releases, analyst briefings, conference calls and the Company’s Annual Report to shareholders which reflects the Company’s current thinking on market trends and the Company’s future financial performance at the time they are made. All forecasts and projections are forward-looking statements.
The Company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 by making cautionary statements concerning any forward-looking statements made by or on behalf of the Company. The Company cannot give any assurance that the results forecasted in any forward-looking statement will actually be achieved. Future results could differ materially from those expressed, due to the impact of changes in various factors. These risk factors include, but are not limited to: economic conditions in the United States and other major world economies, currency fluctuations, political instability, changes in laws and regulations, and changes in product demand. Please refer to Exhibit 99 to the Company’s Annual Report on Form 10-K for fiscal year 2004 for a more comprehensive discussion of these and other risk factors.
Investors should realize that factors other than those identified above and in Exhibit 99 might prove important to the Company’s future results. It is not possible for management to identify each and every factor that may have an impact on the Company’s operations in the future as new factors can develop from time to time.
Conference Call
A conference call for analysts and institutional investors will be held Monday, October 24, 2005, at 10:30 a.m. ET to discuss Graco’s third quarter results. Graco management will host the call.
A real-time, listen-only webcast of the conference call will be broadcast live over the Internet. Individuals wanting to listen can access the call at the Company’s website atwww.graco.com. Listeners should go to the website at least 15 minutes prior to the live conference call to install any necessary audio software.
For those unable to listen to the live event, a replay will be available soon after the conference call at Graco’s website, or by telephone beginning at approximately 1:00 p.m. ET on October 24, 2005, by dialing 800.405.2236, passcode 11041641, if calling within the U.S. or Canada. The dial-in number for international participants is 303.590.3000, with the same passcode. The replay by telephone will be available through October 27, 2005.
Graco Inc. supplies technology and expertise for the management of fluids in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid materials. A recognized leader in its specialties, Minneapolis-based Graco serves customers around the world in the manufacturing, processing, construction and maintenance industries. For additional information about Graco Inc., please visit us atwww.graco.com.
GRACO INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Third Quarter (13 weeks) Ended | Nine Months (39 weeks) Ended | |||
(In thousands, except per share amounts) | Sept. 30, 2005 | Sept. 24, 2004 | Sept. 30, 2005 | Sept. 24, 2004 |
Net Sales | $176,934 | $149,066 | $546,099 | $444,213 |
Cost of products sold | 82,212 | 66,946 | 263,219 | 203,547 |
Gross Profit | 94,722 | 82,120 | 282,880 | 240,666 |
Product development | 7,031 | 5,231 | 19,890 | 15,798 |
Selling, marketing and distribution | 27,581 | 24,449 | 82,260 | 73,976 |
General and administrative | 13,148 | 9,195 | 38,257 | 29,208 |
Operating Earnings | 46,962 | 43,245 | 142,473 | 121,684 |
Interest expense | 343 | 115 | 1,190 | 384 |
Other expense, net | 121 | 113 | 508 | 277 |
Earnings before Income Taxes | 46,498 | 43,017 | 140,775 | 121,023 |
Income taxes | 15,600 | 14,200 | 47,200 | 39,900 |
Net Earnings | $ 30,898 | $ 28,817 | $ 93,575 | $ 81,123 |
Net Earnings per Common Share | ||||
Basic | $ 0.45 | $ 0.42 | $ 1.36 | $ 1.17 |
Diluted | $ 0.44 | $ 0.41 | $ 1.34 | $ 1.15 |
Weighted Average Number of Shares | ||||
Basic | 68,612 | 69,176 | 68,881 | 69,167 |
Diluted | 69,707 | 70,243 | 70,006 | 70,256 |
All figures are subject to audit and adjustment at the end of the fiscal year. |
GRACO INC. AND SUBSIDIARIES
Segment Information
Third Quarter (13 weeks) Ended | Nine Months (39 weeks) Ended | |||||||||||||
(In thousands) | Sept. 30, 2005 | Sept. 24, 2004 | Sept. 30, 2005 | Sept. 24, 2004 | ||||||||||
Net Sales | ||||||||||||||
Industrial / Automotive | $ | 88,052 | $ | 67,305 | $ | 269,696 | $ | 197,027 | ||||||
Contractor | 75,318 | 68,620 | 232,665 | 209,205 | ||||||||||
Lubrication | 13,564 | 13,141 | 43,738 | 37,981 | ||||||||||
Consolidated | $ | 176,934 | $ | 149,066 | $ | 546,099 | $ | 444,213 | ||||||
Operating Earnings | ||||||||||||||
Industrial / Automotive | $ | 23,618 | $ | 22,411 | $ | 70,282 | $ | 62,886 | ||||||
Contractor | 19,370 | 18,578 | 60,210 | 53,874 | ||||||||||
Lubrication | 3,278 | 3,446 | 11,524 | 9,096 | ||||||||||
Unallocated Corporate | 696 | (1,190 | ) | 457 | (4,172 | ) | ||||||||
Consolidated | $ | 46,962 | $ | 43,245 | $ | 142,473 | $ | 121,684 | ||||||
Segment operating earnings for 2004 have been restated to conform to 2005, which includes amortization of intangibles formerly classified as unallocated corporate. | ||||||||||||||
All figures are subject to audit and adjustment at the end of the fiscal year. |
GRACO INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands) | Sept. 30, 2005 | Dec. 31, 2004 | ||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 14,278 | $ | 60,554 | ||||
Accounts receivable, less allowances of | ||||||||
$5,900 and $5,600 | 119,856 | 109,080 | ||||||
Inventories | 58,705 | 40,219 | ||||||
Deferred income taxes | 15,247 | 15,631 | ||||||
Other current assets | 1,113 | 1,742 | ||||||
Total current assets | 209,199 | 227,226 | ||||||
Property, Plant and Equipment,net | 103,309 | 94,510 | ||||||
Prepaid Pension | 29,101 | 27,556 | ||||||
Goodwill | 49,129 | 9,199 | ||||||
Other Intangible Assets,net | 37,098 | 8,959 | ||||||
Other Assets | 4,330 | 4,264 | ||||||
Total Assets | $ | 432,166 | $ | 371,714 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Notes payable to banks | $ | 16,170 | $ | 6,021 | ||||
Trade accounts payable | 22,531 | 18,599 | ||||||
Salaries, wages and commissions | 20,111 | 19,804 | ||||||
Dividends payable | 8,914 | 8,990 | ||||||
Other current liabilities | 48,410 | 43,359 | ||||||
Total current liabilities | $ | 116,136 | $ | 96,773 | ||||
Retirement Benefits and Deferred Compensation | 32,888 | 33,092 | ||||||
Deferred Income Taxes | 11,050 | 11,012 | ||||||
Shareholders' Equity | ||||||||
Common stock | 68,510 | 68,979 | ||||||
Additional paid-in capital | 109,720 | 100,180 | ||||||
Retained earnings | 96,693 | 62,773 | ||||||
Accumulated comprehensive income (loss) and other | (2,831 | ) | (1,095 | ) | ||||
Total shareholders' equity | 272,092 | 230,837 | ||||||
Total Liabilities and Shareholders' Equity | $ | 432,166 | $ | 371,714 | ||||
All figures are subject to audit and adjustment at the end of the fiscal year. |
GRACO INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Thirty-Nine Weeks Ended | ||||||||
(In thousands) | Sept. 30, 2005 | Sept. 24, 2004 | ||||||
Cash Flows from Operating Activities | ||||||||
Net Earnings | $ | 93,575 | $ | 81,123 | ||||
Adjustments to reconcile net earnings to net cash | ||||||||
provided by operating activities: | ||||||||
Depreciation and amortization | 17,603 | 13,333 | ||||||
Deferred income taxes | (95 | ) | (985 | ) | ||||
Tax benefit related to stock options exercised | 1,900 | 5,500 | ||||||
Change in: | ||||||||
Accounts receivable | (3,762 | ) | (3,740 | ) | ||||
Inventories | 1,783 | (10,112 | ) | |||||
Trade accounts payable | (1,385 | ) | 2,353 | |||||
Salaries, wages and commissions | (1,187 | ) | 800 | |||||
Retirement benefits and deferred compensation | (788 | ) | (777 | ) | ||||
Other accrued liabilities | 1,898 | 7,015 | ||||||
Other | 660 | (152 | ) | |||||
Net cash from operating activities | 110,202 | 94,358 | ||||||
Cash Flows from Investing Activities | ||||||||
Property, plant and equipment additions | (12,027 | ) | (9,184 | ) | ||||
Proceeds from sale of property, plant and equipment | 136 | 126 | ||||||
Capitalized software and other intangible asset additions | (785 | ) | (856 | ) | ||||
Acquisition of businesses, net of cash acquired | (102,797 | ) | -- | |||||
Net cash used in investing activities | (115,573 | ) | (9,914 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Borrowings on notes payable and lines of credit | 75,346 | 20,943 | ||||||
Payments on notes payable and lines of credit | (64,989 | ) | (19,186 | ) | ||||
Common stock issued | 9,573 | 14,075 | ||||||
Common stock retired | (35,238 | ) | (32,773 | ) | ||||
Cash dividends paid | (26,894 | ) | (123,460 | ) | ||||
Net cash used in financing activities | (42,202 | ) | (140,401 | ) | ||||
Effect of exchange rate changes on cash | 1,197 | 112 | ||||||
Net increase(decrease)in cash and cash equivalents | (46,276 | ) | (55,845 | ) | ||||
Cash and cash equivalents | ||||||||
Beginning of year | 60,554 | 112,118 | ||||||
End of period | $ | 14,278 | $ | 56,273 | ||||
All figures are subject to audit and adjustment at the end of the fiscal year. |