GGG - Earnings call transcript Q1 2018

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Operator

Good morning, and welcome to the first quarter 2018 conference call for Graco Inc.

If you wish to access the replay for this call, you may do so by dialing 1-888-203-1112 within the United States or Canada. The dial-in number for international callers is 719-457-0820. The Conference ID number is 3053454. The replay will be available through April 30, 2018. available part PowerPoint of information is presentation, additional as available the has in slide a which Graco webcast player. of questions the request conference the the will we At open up for remarks and opening after answers from management. company, the

in results of be the remarks www.sec.gov. Annual various expectations, prospects Safe differ the the a provisions company's purposes may risk future. reports of call, the and the the factors, management at constitute remarks Item www.graco.com Form Report Private and at by on website recent of Reform including of may the in this those XXXX These about the those on made Securities Act. from During forward-looking company's indicated for These most available XA SEC's XX-Q. result various website of their plans, identified company's are the statements Actual on Litigation materially for Harbor XX-K and Item XA Report Quarterly Form as

reflect update Forward-looking events. recorded. Controller to the Vice The and obligation no management's as call light future now new being will Corporate company turn to Today's over like conference to undertakes information are Caroline of is speak time of or they only statements I made. statements the President, in these views and current Chambers, Systems. Information

Caroline M. Chambers

McHale Rothe. Christian and I'm Pat everyone. with morning, morning Good this here

you information this for significant a get slides adopted call find I with the recognition that additional conference have A operating Our on may revenue the standard We provide few our been new quarter. on results results. effect items no and helpful. posted the into before quarter housekeeping website

in which costs to standard accounting non-operating be costs new included other pension to the adopted and expense to related expense. requires as pension, operating service be also We included

that expense this included no expense, change quarter. other of income in previously pension-related the and other was service starting financing in there corporate have classification the been cost were to costs included Graco, For unallocated

gross favorable the adjusting totaled for $XX or quarter stock and full the $XX.X unfavorable from were change $X key a operations, especially We sales in our change acquisitions For consistency, is first earnings provides added in expense valuation. share. an slightly shows acquired last of to page approximately sales the including operating the the saw by share. Page margins up million our deck charge first points the net remained our rates from X the translation in slides include acquired Reported at exercises, purchase in XXXX. totaled Asia and from currency expense and the $X.X individual are from strong, of as are growth overall inventory an for year all million per operations At offset by per exchange Gross rates, benefits After of nearly from points Pacific, prior of year in X earnings page rates or segments currency, $X.XX million deck. of diluted results. XX% quarter. which A million our to tax the unallocated the to reconciliation margin $X.XX million strong $XX sales pages growth in revenue corporate be with regions, of from added slide year percentage of components $XX strong was current or earnings from for constant reclassified the quarter which million X prior and increase net from approximately exchange related net excess diluted acquisitions. the With the sales later other the year. impact and effective expected of summary for currency few effect of the without X, percentage an X accounting segment effects lower option currency translation

second We accounting the purchase during for similar expect amount a quarter.

rate manufacturing favorable and and $X related strong continue in including increases. for remainder expect that will than quarter, quarter, I'll material is lower earnings-based commodities the last market-driven $X the to year, compensation. increased operating offset first and operation, Operating performance compensation factory million the effective and to was million change. first for to we expected incentive performance pricing in translation, a moment $X and other acquired compared percentage sales projected offset take the which During The the through that X cost work and to last expenses factory At currency volumes, by $XX increases million quarter points the year, and quarter from tax share-based year. current costs of million XX% first

excess legislation compared reform effect tax of U.S. the related option XXXX effective the year. tax points the by tax The the reduced last last by points in rate quarter benefit X XXXX tax as to effective exercises reduced to X of point to quarter in X the rate First, first year. stock the percentage first percentage compared percentage

lower X benefit related excess a percentage stock exercises option lower to from partially rate offset of benefit had the corporate tax the for of we points. rates percentage lower points X So overall by

tax in $XX have operations lower net share point shares EPS. $XX Cash million would totaled to comparison, price in the compared of advantage year. first $XX a XXXX, quarter, $X.XX million As had the of made diluted volatility million. for share added we if of repurchases of the quarter during Taking been issued rate it place to last from flows the in

forward. an We opportunistic $X going will expenditures this million Capital were quarter. continue share to make on repurchases basis

$XX capital for is the current be X we and half. on effect the in projects and XXXX. be current million full-year sales and full million be points first that equipment year $XX than effective currency to will more two-thirds our mortar rates, of approximately a tailwind earnings machinery on us and for to for continue estimated for exchange percentage estimate to brick for Looking the approximately expect expenditures At forward, with X% with

expect in up is unallocated expense $XX corporate approximately about to from be expense $X expected approximately million costs which are $X be included XXXX, million. to last in year. Pension We non-operating million

full-year Our is XX%, stock now call to effect rate exercises. Pat further related excluding and excess regional turn any over approximately option benefits to segment tax tax for the expected be I'll to XXXX discussion. from

Patrick J. McHale

and Thank had second basis. of the you, we are organic fifth my that against every Carol, consecutive the in currency comps morning growth and was morning quarter world every from difficult everyone. comments and All constant the region of consecutive this good on where an quarter achieving segment year. our in growth prior This

and also Contractor the the continue well. their double-digit growth of I'll demand remain channels. environmental QX double-digit Process lubrication with single-digit in to continue consecutive In double-digit with on segment, and first customers from high nicely the strong EMEA growth. growth reference, seventh year The my lines both the are a performed comments I in growth. every in of product paint their Asia be on based. contributing good Out-the-door roll we to levels Americas, sales double-digit and and that In team to Pacific. Contractor in see broad segment Americas channels quarter. notable. our home center Demand continued store a solid areas growth EMEA both high had in the was quarter For with single-digit We think focus last growth few

lines sales acquired America gas A the our more European More and quick some in complements we Industrial natural and applications. Finishing the in oil weakness mostly offset designs a gas on in were we than sales Asia. product was first business and engineering are uptick in in January, down broadly, for company Europe oil and and by certain that note operates and builds in powder direct from as Americas systems seeing vertical natural in extruded North growth In EMEA. aluminum segment. Our our growth early coating business to nicely Powder acquisitions The customers quarter.

We acquisitions growth. very last in percentage which X QX the million and small sales in Contractor points, in Process to XX sales, total, worldwide added was segments the also In two $XX our acquisitions months. had

region slide in our impact You can deck. the segment see sales by and

to on Moving profitability.

incrementals our QX in of strong. XXXX extremely reference, For were

in against profitability So comp. was also the QX difficult

in expectations FX our the approximately acquisitions, in incremental late quarter year. line the mid-XXs. segment Contractor little in and margins the quarter first margins first were full XXXX incremental the in with were in for Excluding XX%

However, we them liked and they ago from off were only up are year a have against were a in incrementals the XXs about million we would $X.X that to where be.

the was systems All-in-all, and Caroline helped solid level overall I'm unfavorable incrementals project in volume in increases. material the somewhat factories segment satisfied Industrial As pricing offset activity Favorable an by mix offset for in higher finishing performance our QX. our of quarter. growth with cost with our mentioned,

thus month outlook, hold Moving to Demand order our incoming similar levels at that's far XXXX growth outlook. to our every rate a rates to steady. be through in continue full-year on appear to

from to is biggest constant organic For our first currency strong performance growth driver raised quarter full-year it outlook, mid-single-digit the growth the mid-to-high of the the across in board increase. single-digit we've

outlook growth region. to high our We are and from every assumes reportable growth mid segment each expecting single-digit from

and nuanced Industrial digits quarter shipments year during the nice, second release have last shown bit fourth in The beginning and but Lastly, low been around message last orders last was year this year while evening into of I'll the we our up the have were the first third more our press half year steady, quarter little through single-digit double single a a growth color. mid-to-high a quarter lumpier the give and timeframe. this that Industrial segment of year last digits.

first half put more quarter second range, the to dates in We weighted single-digit Industrial growth. likely meaning were the low-single-digit for delivery expect be is QX. customer mid-to-high in towards sales heavily the expected will Simply be

that's to distributor rate our for it's to any off start. We I'd suppliers, just and all a of fast QX, timing. partners the getting moderate thank the business, that not our in see going year to like but are indicative weakness Graco in growth employees,

we're Dale legend for ready fast start Operator, Johnson first. and questions. Graco says, As finish

Operator

you. at begin Thank this session The that time. question-and-answer will

Oppenheimer. from The Please Jim question. with one comes first your state Giannakouros

Jim Giannakouros

Hey, good morning.

Patrick J. McHale

morning. Good

Jim Giannakouros

mid-single-digit you so to just line this pegged that's that I XX% year? going still expect mentioned EBIT or Any guidance you offsets that that for incrementals, given you number Pat, had to raised organic.

Patrick J. McHale

the mean, generally a good XX% I number still your No, for of the number the balance I volume well have speaking we is we think and do model year. for when

Jim Giannakouros

It help. new shelf Contractor. mean, doing I or guys greater color box feels traction in space Thanks. there modeled. you can well like And benefit from Okay. are and are you share. would point there Did you is Any gaining you taking any make? products you're granular big very greater than

Patrick J. McHale

Well, got wouldn't I hard. particular. We've put strength across We've solid was strong in business the a finger a is We're my channels. good got anything working Everybody team. product the worldwide. seeing offering. on

well positioned to we're the we're think is what do and just to good pretty we and going around do. I construction environment world the continue

Jim Giannakouros

you. Thank

Operator

go Markets. next RBC Deane with to We'll Okay. Dray Capital

Deane Dray

Thank you. Good morning, everyone.

Patrick J. McHale

Good morning.

Deane Dray

Hey, I on some hoping businesses cost. across into the you go of can was dynamics the price

various the the It here through on you here? you have sides here. all in equation price combating raw that pricing for degrees. are industrial passing and mentioned You this timing that baked on are what's do But players looks guidance still on materials give both getting us to power how like of the increases and your

Patrick J. McHale

to our internal really able in to zero to shot performance with continue of first year, they done cost a our factories Yeah, pricing. volume, factories a typically of the volume and do so factory think our performed increases so change that got nice they've material been do, quarter well the job with have has to and cost and I rest good the and metric driving offset

slower that the lower grow of generally, businesses or whether quarter. bake to of an X.X% have in we sort like And year But mix and basis margin size in annual we'll to continue your biggest around that or thing be of timing and particular in any and price What tends a fine. one relatively rest prior good terms can I in typically of going feel into pricing shape years. you swings that on put is We model. higher the the faster through realized into we're consistently the

Deane Dray

the anything is or up would showing on be one tariffs? that with the then interesting. indirectly? And is there Anything regard to related the question, just your more business And horizon impact the to going probably it's that directly indirect

Patrick J. McHale

good it. I'll seeing guys try might We're Generally, over don't to There's kind happen. like overall that figure Yeah. feel economic strong to across what about to that. I of game be sleep ball lot And performance of have a you any lines. the to losing I'm out the played. I not and regions crystal across any product leave environment.

Deane Dray

I'm showing question. and not you half? No, lists make into about want understood like, asking are suppliers just of your be Washington. products factored what might any or up on sure of that in your to happens second any the prediction the It's

Patrick J. McHale

There to stuff Again, I details future. in spending predict execution of understand written. not a aren't change of my think question. lots Again, it our at on any happen as what opportunities I the of than Graco what I in might don't out focusing we're the risk trying at better happen point the and figure might point. The a level time granular significant is rules current am that's trying going view I this and to time this at at off to

Deane Dray

hear. you. That's to really good Thank

Operator

with to SunTrust Charles next go Humphrey. We'll Brady Okay. Robinson

Charles Brady

out some with look some a to wondering just at you or are to you about to Thanks. larger M&A pick deals, you small picture Good the than growth at now, have but here, you of on done kind a have strategy I When go been to you bit guess doing? point addressable and where are market, so going your question. stuff market find you morning, some at right to the I'm what of branching guys. you out out farther stick of tuck-in kind another and I'll broader guys expanded something, guys Well, think I'm anything going you little do afield struggling

Patrick J. McHale

you're there. investments feel can in things. under stick that see our There product a deals and And going feel most our to pretty probably natural fit out we got continue aggressively a do are run We meter, don't some with of valuations, time to at there to where get point at pursuing the opportunities confident valuations we new organic to of these and make be like done. disciplined. expansion find opportunities kind really of we're dispense, that us is applications. any that think do not Frankly in that's I like in with nice would acquisitions, it we're a that can channel expect type lot that we story and you and done ridiculous some acquisition, the a think new team a in some get a going leverage. handling to fluid growth and be going price smaller and terms given and pretty pressure development one certainly we to lot of that done. we're larger we geographies to of We've mix, out pump, is to high likely get pay but business We've

Charles Brady

from Yeah. That's get released, growth taxes fair tax customers spurring the is to of of early of Is be paying any kind not enough. additional see capital still that I may being obviously growth it. more was cash, some it wondering they're are you in out? too that people reform hearing on or because your anything with yet terms come more

Patrick J. McHale

the generally we it's finished units about a just operating here little bit I and bit say We and in would talked business early. of for Yeah. reviews we Americas, our that a little all think with

Charles Brady

Pat. Thanks Great.

Operator

with Mike And Robert Baird. we'll W. Halloran next go to

Mike P. Halloran

everyone. morning, good Hey,

Patrick J. McHale

Hi, Mike.

Mike P. Halloran

quick, on within for I expecting guide single-digit growth that segment well, region you're as you hold just So said Does know range. the Pat? the true mid-to-high that every

Patrick J. McHale

Generally, down it forecast – more get – we break our segment, don't it complicated. we just by gets

So, we'll guidance the way leave our I is. it think

Mike P. Halloran

in seen timing how And what new product that came be fair. then would it different prior That's you've from Okay. then and nuances this any year years through?

Patrick J. McHale

to early. I in coming a business and back products that as We going that going for think XXXX get stuff new be December it's we hard although it's coming year, business, do communicated usual. not did we nice have work think product out to launched some I out, No, got it their Contractor to our big for that be try

Mike P. Halloran

it. Sounds good. appreciate I

Operator

Okay. Bank. We'll to with Saree go next Deutsche Boroditsky

Saree Boroditsky

Good morning. Congratulations quarter. on a strong

Patrick J. McHale

Thank you.

Saree Boroditsky

it's just Given the second I some remains talk from improve started Lubrication year? believe seeing because if demand more you mining strength the and commodities that year, the activity in through to of strong Industrial you're the about quarter regions, could last and it

Patrick J. McHale

that for product downturn are market of as lot and have suffered we've business that during we years that great and that's us yeah lot space a lines is few the we – balance the a positive to on I through nice be for mining exposed well. And view see going to a doing year. And a that our to continue that's our significantly don't of here that end got to think Yeah. although a

Saree Boroditsky

for then And mining perspective, the the growth just full from acquisitions to you contribute expect much year? how do

Patrick J. McHale

even make didn't else, of number, really sort do a anything if that – Caroline we but... give don't can we you So

Caroline M. Chambers

think with we moment, rates, the around exchange million. At Yeah. $XX it be will current

Unknown Speaker

acquisition. further any Without

Unknown Speaker

Yeah.

Saree Boroditsky

it appreciate, That answers the question. I helpful. you. was Right. Thank

Operator

to Brett next go Gabelli. We'll with Kearney

Brett Kearney

Hi question. my guys. taking for Thanks

Patrick J. McHale

morning. Good

Brett Kearney

morning. Good

Just to South you Africa America ask, I to making seeing growth maybe and guys and you some guess, you are are see investments want opportunities the support there? out guys the of of

Patrick J. McHale

and business both and are quarter obviously Yeah. they Those in with smaller plus territories the us prices, a economy around Africa better improvement a lumpy been from bounce driven of quarter. getting the that's incoming to has oil that sales and and for by improvement is obviously be bounce orders heavily tends commodity tend in to around the little resources. prices to the some

better is were little soft. last bit year, South America they a

kind attitude wait-and-see towards taking So, a of it. guess, I I'm

Brett Kearney

Great. Thank you.

Operator

next Walter go Seaport We'll with Okay. to Global. Liptak

Walter Scott Liptak

provide business a channel guys business called and Hi. products I And the partner, some if out it's new colors, or new wanted to wonder strong. ask demand? up. I about can just was Adhesives Asia change in the really picking the your Industrial growth you you or

Christian E. Rothe

Yeah.

for of out that like we've of us. in have adhesive automotive while been good quarters Pac had just trends to market. things the that a be area continues Asia a called growth we've for good business. We dispense So – dynamics we've number positive row obviously having the are those a And in have that electronics of we're Industrial seen seeing several X There positive, continue. been Tier now

Walter Scott Liptak

Okay.

you. Thank great. Okay,

Operator

next with we'll Matt Summerville to go And D.A. Davidson.

Matt J. Summerville

more factoring are standpoint Can of costs have plan in Thanks. Where specifically start best little bricks what and and capacity like? talk things into start-up of mortar? XXXX? a about capital you're about bit the Do total then need around spend and guess sorts the ramp-related guess doing do adding you you might to look thinking value and I multi-year from you we of those this models what a

Christian E. Rothe

Good morning.

we So million to that That this not $XX our mortar bricks about projects. the out entirety year. did is call and going be was fact the of

going We an that's that's we our the number likely facility largest also expansion have of projects. expansion the project have that to are on a going in smaller projects other But around world. Rogers happening of be our

and is year, into Contractor as early but far XXXX especially those as startup in the headwind what having in as go much of for we're $XX we the be, on that again far Not some in So concerned and lot continue a XXXX. costs for costs number not maybe frankly follow this to it going on business this will million as into a at XXXX. it's us could all year, look as really

Matt J. Summerville

products point – growth distinct a that there is of earlier around instead Contractor, from a you've do you feel this of you been in question equipment and then the base Is to two to point over just has dynamics? is that and Americas this at can being Contractor a what follow-up or such there you a extent three? And give like the they're focused To sprayers there by by recapitalization? color Europe. turned portion is there maybe various everyday sort installed brought maybe influence of of market Or it's things driven it's just shelf a their to, on those specifically distinct truck, on the specifically portion can new driven any your space, growth your recapitalized Western being – of is saying carrying big that customer, Graco carrying or added

Patrick J. McHale

the to stab in the XXXX market housing was Caroline The I'll downturn it a both that want Western they do U.S., that and rapidly in Sure. by Christian in, pretty again. XXXX-XXXX really weigh then take was business big and growing ahead go was it and Yeah. in at that Europe and can back and timeframe that. and

fleets here for as equipment do be to for has that equipment normal do gone believe There's labor us. XX XX That's So, I positive believe of than really next should more in market some and as probably good any challenged years to and that no back trading turning in believe emerging markets back the global that a anything it go more the bounced more it people to up from a been at throw construction wages business influence in that positive is a over dynamic us see get than was. sprayer measure specifically their of would but some labor the project. for makes market, dynamic have the way regions and in into I that, the don't sense than I wages is what be this they've XXXX as that the there's rather to that using for for dynamic or up use we labor environment.

did measure of But got shelf very bit can new more we wouldn't contractors of new couple customers been very world, channel carry to mean, that products the on from definitely in we my from of They we're products choose on. more a normal pursuing multiples have I and That or there driving put has up always thing space, every around Whether the one partners I I think finger than and a definitely, They're little development to five terms ago. not, launch new new equation. part years the team In that's been I'd a and get that but are different sprayers active really years contractors has say process. year. product Graco standpoint. any the customers hard last regions real strong good that's pretty a business. carrying

Matt J. Summerville

Pat. Thanks

Operator

with Hammond to next KeyBanc. go Jeff We'll

Brad Erickson

Jeff. morning. Brad for Hey, Good this is in filling

Patrick J. McHale

morning. Good

Brad Erickson

growth – is sprouting across in the Just these high in any but there the not fully are rates issues chain this until kind businesses a of reflected if incrementals quarter level, supply the in on up capacity first more sustains all projects materialized? question clearly risk

Patrick J. McHale

not I'm for in don't see special. supply you've about going if chain nothing day. our too to every day manufacturing, on It's ever that anything I every the mean No, horizon from us that challenge there's have the I standpoint concerned been issue that normal that. growth. But that's we and impede

Brad Erickson

may did Thanks. trends have then, Okay. make And you missed this, through I towards but far any kind of so comments April?

Christian E. Rothe

Yeah. basically his of the our pretty the – outlook order comments until Pat full the from around had in growth prepared at for that that this rates rate year. held beginning through that's from now, the matching fact nicely year they've

Brad Erickson

Okay. Thank you.

Operator

We'll to B. Liam Burke go FBR. next with Riley

Liam Burke

Good morning, acquisition is shifting that seeing to or Pat, it business you doing Christian. growing in mentioned Pat. Are Thank powder? application well. liquid an Good than morning, you from traditional you. powder faster liquid

Patrick J. McHale

when out applications of than but factories a to are that but I've again years a seen I running are completely from what do anecdotal team, and this I'm do from I evidence ago. get liquid see XX more talking customers also that and to our see powder, don't and gone I ton I had lot both of is

I are before powder, still there there're becoming would are that that have but applications think facilities I liquid think that same in those So liquid been applications. also that

So, I for us. a think that's dynamic positive

Liam Burke

momentum markets continued mean, like are looks seeing got there? end the end there, markets, most automotive, across on you it Okay. strength I And then you've

Patrick J. McHale

generally is the we've been doing is okay. I unit Asia automotive obviously, data business the in what can is but well, volume yourself up on Yeah, speaking region, mean, doing by particularly and decent Pacific. you look automotive

Liam Burke

Pat. Thanks Great.

Operator

Pat this I'll over to And Q&A our At McHale. it time, concludes Okay. this session. turn

Patrick J. McHale

All see as we our conference going work Thank to attend Well, do back thank in usual, to I this to can QX. everybody if get morning. for you. And time and their right. we're call

Operator

our participation Thank concludes And a for All conference you have today. parties nice for may now disconnect. day. this and your

Graco (GGG) 26 Apr 182018 Q1 Earnings call transcript