GGG - Earnings call transcript Q1 2019

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Operator

Good morning, and welcome to the First Quarter 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 IMPACT number is 3050476. The replay will be available through Monday, April 29, 2019. available part PowerPoint of information is presentation, additional as available their 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 be of report the various Company's remarks expectations, prospects Safe website risk differ the are Item a provisions purposes may future. in Company’s factors, of www.sec.gov. XA and XX-K on www.graco.com, call, the management Form constitute remarks at quarterly Private the including Item and annual by Reform of may reports the SEC's those this those about made Form XXXX Securities recent Act. from on During forward-looking of website indicated These for at the These identified most available result Company’s the and the various their plans XA of on statements report Actual Litigation materially XX-Q. for Harbor as

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

You may begin.

Caroline Chambers

I'm morning morning, Mark with this here Good Sheahan. everyone. Pat McHale and

earnings for in our the earnings At the provide an Reported year. share. $X.XX X%, flat increased and X.X for points margin the you excess currency diluted tax is decreased by option to and by to or totaled the helpful. gross of $XX essentially posted currency first planning non-recurring the a growth decline additional tax contributed material by website compared per Approximately of $XXX find product rates. exercises percentage margin or net item, At rates costs adjusting diluted for translation per to lower rates, actual currency year. share. stock unfavorable also sales unfavorable Our from on conference half segment. rates, Gross and to quarter totaled been After quarter, benefits consistent slides net million last call Higher due that mix impact $XX million may sales the translation quarter first Process $X.XX last have translation. driven million information totaled the

into changes and risk Our effect quarter, price the the went throughout quarter price realization first during particularly in improved March.

for full be be the in and in the million. XX% We projections that adjusting effect tariffs the change The China earlier as year planned XX%. previously higher expect material price XXXX realized cost progresses. of now with to the This is and tariffs from out expected after will incremental line effect is to $XX increase of approximately

as as varies compared to by is also expenses due for for This Product significant first in year XX% to new $XX the payments when the and compared million from other million, year. earlier expect with X last was trends will compensation. pricing that are in leases approximately stock for rate these tax were $XX year. lease $XX to by tariffs million to certain lower last and material to XX.X%. Adjusted the items, percentage performance the our development Cash million expenses to and balance line timing facilities stock compared of effect to and and rate excess sheet. in first the costs option as in the flow on to quarter tariffs of quarter factory segment. locations. implemented first compared by increased in in full $X dollar a swing. last the corporate noted We current benefits increase quarter capital At manufacturing exercises this Unallocated seasonal of was with quarter quarter the working year. points in realized and due last offset expenditures increased various as last tax to year. due Capital in primarily in compared by standard to an assets expand liabilities decrease facilities for and tax approximately million Changes first quarter totaled value our operating primarily incremental certain the items. $X recorded most cash related Incentive compared quarter, of primarily effective year. decrease non-recurring the in primarily is are operating and the tax to the the projects The planning first last is approximately quarters, These lease Contractor were in As segment expenses volumes, $XX year. distribution we million factory operations flows

the Looking will year, expansion be facility of unfavorable X% for prior on rates, to the year. and X% approximately sales for on $XXX full for is the is on forward, to same be sales the to earnings, much current current and effect our X% mix the business X% expect and in earnings. continue on we capital equipment be full $XX The million $XXX as machinery million and translation for currency effect and estimated second approximately the as quarter could of full-year million At estimate as approximately year. expenditures assuming

$XX an our for from full We increase expect to due $X of million expense year be to million increased costs. the compensation stock projections, approximately primarily XXXX, earlier unallocated corporate

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

Pat McHale

Good everyone. Caroline. morning, you, Thank

on an constant my organic morning basis. of are comments All this currency

quarter First our was expectations. below

balance holding and cautiously of to However, we the are the our outlook year. remain optimistic regarding full-year

particularly of Asia Industrial on color flat remained to segment in year, business The compared quarter. the business last levels project Some solid, for was soft Base segments. the Pacific. while was QX

We very to on select did had pipeline hesitancy broad-based organic end good. segment strong the The although with and projects markets. and better. Pacific offset in Our earnings North a end flat product improvement with double-digit with customers a Growth segment. the we pleased margin the by be trigger was QX, in Contractor in quarter year the good store the for categories in are of we the this continued paint And America. the across balance looks performance was Asia Process for leveraged volume by believe and pull see some and growth. growth operating business segment will the solid quarter EMEA, decline

the launch paint the least the at America were was North self-inflicted products early as launched near of quarter finally in in decline partially new quarter. end channel planned Our to

year. We center sales digits. contribute the sales the the out-the-door revenue America double on performance as in quarter new both were up were and and launch new we than sales to process significant stronger purchases. to of expect result products channel new through without of earnings. channels, paint pressure the head mix product rest Combination In put channel Home in unfavorable product segment Contractor earnings

we a growth. operating a our for we better year not full it's will be to Contractor Although have for top flat good important mid-single-digit it to with the start, meet QX in margins this, covered To line slide these market are target our segment moderate the think we holding stable. of on progress I that Americas. believe deck broader A commentary, Between QX, demand our year. will we've profitability. and through as issues The factors profitability weighed the comment the remains in on

New is price track. products realization and have launched on

adjustments, stay realize to through our incremental course quarter. the the Assuming the plan long-term and we margins unless we that our forecast, second we we as weakness top year. growth won't investments persist We significant move line see spending anticipate will execute normalize through on

the sales growth on and constant in start, continue regions all reportable basis the year with we currency Moving target onto our mid-single-digit outlook. Despite organic for full a slow XXXX. growth to segments

to pricing end Our new hard Operator, team and have working improved products give project will questions. a make year. is for pipelines, to happen. realization The we are opportunities good markets, ready it us

Operator

question [Operator our Sachs. first Goldman will from Joe Instructions] Ritchie from We take

Joe Ritchie

everyone. morning, Good Thanks.

Pat McHale

Good morning.

Mark Sheahan

morning, Joe. Good

Joe Ritchie

and focusing Pat, growth for of maybe second kind on just a just on starting then industrial. trends

for Asia business, that quarter. down Pac conversely, will then and this really obviously, was And be market the bit was well? Americas auto-centric? Americas that helpful can the this at as within it What bit you're guess end was How of you strong, look a little a on quarter? us? else take parse out happening a so You color I much any

Pat McHale

underlying repeat the some the number I I patterns base When with legacy business bit demand up that business the look in first big so hit think did We that it activity in project think, quarter the situations little I year have that around also put better. last a might quarter have of North a projects industrial in year made in had to in in both our America overall in we And bit our a our can but be Asia looks expect a okay But good. little of numbers demand, some okay, America number in we the similarly first pipeline looks of due pretty year. timing North at we of particularly the didn't look stronger. QX take you project move the this activity. look and balance think Pacific

the it's is be I would from years to going to little we great industrial demand be noise wouldn't going Generally, think bit our in always say and there's okay I a that globe quarter-to-quarter. the number say industrial So of decent. across but

Joe Ritchie

That's little What this got the we mix Okay, there you in on drove of that for of little like guess maybe a of kind so decrementals a impact bit business, the by Industrial's color I kind in and were second, And just weaker any, on provide can a whether helpful. it. quarter? quarter? really maybe decrementals was the just like, staying surprised

Pat McHale

Mark Yes, I'll weigh in. let and Caroline

Mark Sheahan

of I the margin. combine from the much little bit the lower gross Yes. say we initiatives, with are business be, pretty our are and anything AP in were what decline. profitability given I Incrementals the but that expenses bit in And expect a would Caroline, And enough for stop you sure, in kind would that when we don't in decline, the decline. overall pressure volume what as bring with decrementals and just don't the had but and of we decrementals investing Industrial with know our sales kind mean, great we currency them that expect expect you you regions, the don't variable to we a we expecting. the to ugly, if line in harder to have would all add? then, other have were so that Probably of business. I little than sales

Caroline Chambers

in of a for business the of Yes. we bit China. particular, tariffs little did the retaliatory effect see AP in

Operator

Deane our from with Capital take RBC question Dray next We'll you. Thank Markets.

Deane Dray

sure you've a if product get the launch. corrective we Can what don't Hey. and through issue, often the I'm but addressed us on new take happened Contractor taken? quick and just Missteps were happen you what actions postmortem

Pat McHale

They advantage the happy none But quality had can We to quality products we're the is we but a to hay take back launch. do that start early are and the and spring out get and the here now going that our solid have make the in were in planned that the second the discovered launch out quarter and went quarter timing it. going of happen in on of through fixes engineering first of to of make the was us we'll bill. but selling door place and season. time, to didn't the the we say final we early of had just We magnitude time door, And the top the and to did solid stop some put that would Yes. it good here couple did that new it we production and than as problems are the happy we did from have quarter. the we it best does and in before usual about bigger I sure products

Deane Dray

the became for expensive size what overtime, quarter? impact the do to that anything shipping, in Can more you additional us was either

Pat McHale

guys coming products Yes. is knows customers. impossible around is distribution to for can't -- and The to push do. run not trying we sales the and pretty the so old have prep sell to they're and No, end out the of course the the and then ready new it's and new new channel the new

not number in but new know way a product, new to launch put certainly is our on So a experience that with thing. it, late in Contractor, the in we there's good products no

Deane Dray

these any prices initiatives, And then, about there -- over can how in of qualitatively, helpful? switching increase price any pricing would also just you for comments the effect was? stuck much be see started us to you on to March, then quantify And traction what the any And that pushback? power your

Mark Sheahan

Yes.

quarter, normally, throughout that this dramatically the we so prices do rollout I first nothing is different Mark, there. think

really would cost automatics quarter, pricing no, our our don't that actions. As what any position those we're We if good the of out price couple I and that it things guys, types ask generally we we you saw pressures work break us the changes the and to kind I We feel commodities have terms were, some here I terms but of so have actions definitely speaking we of out pullbacks in through from as sticky. no that impact say that to improvement don't But like we'll that cost. in do when we we for are we of that know took. we of in a break in that today like with offsetting these things that comes discussions other pricing tariffs things. are or of of expect have surcharges a build them. customers in with tariffs sitting

Operator

Thank next from Jeffrey our KeyBanc Capital you. Markets. take Hammond question with We'll

Jeffrey Hammond

you given Contractor, rollouts, just timing the product second bigger quarter catch do up just as a or of some the expect back So result? on new

Pat McHale

definitely we pull I and we're slow off do, a back and full our forecast We start. need it. to didn't year

on it. like average math the rate. do just a So batting That's

You get behind. to up got it if you pick

be expect we're going have And if so, some we problems. definitely better it to and QX isn't, to

Jeffrey Hammond

the been on what's finally And launched? feedback products been they've as the new

Pat McHale

expected it. we been good, and it's Yes,

product strong have it new launch We bad. was timing was that year, just the a

is overall the So a think we're for benefits market to seem size products. and to the of we some those us end pushing there fair nice in good Contractors be for line environment we've and given product this good touching fact be Contractor good, got be backlog our that the and seems to a that

Jeffrey Hammond

disruption the then and just Okay. how what XQ the talk of expectations? playing impact is around you think of facility can to year, were think new And out I -- in XQ relative some in half you expecting kind that what the it's product in you about first impact and the was

Pat McHale

that stock happened disruption. any to going and my the give move and different don't definitely Contractor intend expense customers. is, some as hope first that our We great around, may some we belief do additions terrible listening. think to and That keep extra facility product and issue it's in we is Yes. be not be quarter I we expect pieces around. some products And the be and later having quarters manufacturing in would service Really there But significant, equipment as start our -- I are P&L. impact the in we to driven that folks was the to the but to through against incremental they're if noise our the some that get expense

Jeffrey Hammond

of maybe We've to heard people through XQ? talk finally, trend year, just momentum -- start talk building you the Okay. then, about or and about the weather some disruption into talk kind slower just just then, And about can quarter?

Pat McHale

got We over operate really think the markets any give quarter. all trends insights the there's you many end we've in that I I terms globe that through so of can and different don't

Operator

question Thank Jefferies. you. Boroditsky We'll our with from next Saree take

Saree Boroditsky

you you're Could to color You projects. seeing just behalf end Industrial on pull mentioned trigger hesitancy some customer's on the on any particular market in? any put that

Pat McHale

breaking you up that? Could were you Saree, repeat there.

Saree Boroditsky

Sorry.

color you're particular You to hesitancy Industrial. the in Could seeing trigger you in provide mentioned on any on end customers any markets projects some pull on that?

Pat McHale

and what's specific that with a did happened probably in I the they Asia and really government, would U.S. forth some the and placed little have orders probably think the between in we have surrounding a have of couple Pacific was projects uncertainty would back That -- bit Yes. of to Chinese the but projects would QX, been weren't. we expected and have over

can some move uncertainty. that the point big a just due cases in but deal out probably it's and and business it hesitancy see quarter-to-quarter was there a we to did around to wanted not again, projects So, we our few

Saree Boroditsky

But anything increased highlight Is estimates else additional there? like for helpful. looks expansion and anything, there any year. cost to That's it for the or distribution capacity production you Great. your plans

Mark Sheahan

increase was what the million side, that's capital $XX that think, the and did of I matter on really aspects design building just We us our that on. of you're we're to, by, if investment working referring projects a of some fine-tuning the

we the with cadence point. costs than good together, end at came still the higher those the what they're forward moving little anticipating bit of certainly this on projects As year. designs a last at But and were we're were

Operator

from you. question We'll Robert Mike next Thank Baird. take Halloran with our

Mike Halloran

the then. timing customers When pulling of the core three got some you across question, And and you you've product in -- the about the would your demand out? think gave months your are what from thought laid has when launches. down from the any -- tariffs few that first projects, you things or really segments a back from how quick across Pat, bit, here changed moving process changes regions, So, much the pieces mention? your little specific saying some guidance

Pat McHale

of first a be believe to because is year that in much. to back still not our project we at a our would didn't. decent we such just hole only out not we've our most did better year out range. looking that as bubble that's to and activity, a game quarter, for to new in off do bit, and we and think dial Yes. for still But of and year for rest chart, the product what reflected again mid-single-digit of our, expectation themselves way I we and us the I to the call the going we do. markets, have the say we're of good a that did thing start in that dig to little really get to not believe our overall our fun it, big got and they your The guess, dug to launches of opportunity environment we're end good more be Asia reasonably the front try have it's we hole Pacific far Certainly, and going that in full we going we're

Mike Halloran

acquisitions side for set appetite on or capital for market valuations your buyback any commentary deployment the different for looks what you, Anything like? on obviously, opportunity share

Pat McHale

Everything now. is right expensive No.

normal to try stick get and our good make when shareholders. So to can a for buy to our we're we're going going and playbook things to we good decisions return

Mike Halloran

Anything on buybacks?

Mark Sheahan

We a didn't plays got here any debt, year and in so support an XXXX. we'll said opportunistic QX think out opportunistic balance we'd can approach. in see do I we how that sheet and we've the Obviously be some we'll

Operator

Thank from Matt our question D.A. Davidson with We'll Company. take you. Summerville next &

Matt Summerville

there. help Mark, Hi. earlier. bit Maybe in you're just able to little realized you've on in commented you more you the what XXXX? of sort Are in difference, you if over anticipating had quantify, a maybe, realization will, pricing XXXX price

Mark Sheahan

Yes.

I year. Matt, full realization, still think, X.X% for overall the that X% of price same in we're kind to

Matt Summerville

dive project piece auto of it. Pat, but bit redesigns et then just driving cetera, will? of, And in specific little new well on in, on you're color we're if regional on Got as market. you a of kind seeing follow-up business also environment sort deeper you're specifically give production the far automotive platform in of a the just what funnel there a what seeing context to that the you auto as of just can as side maybe, the the maybe launches,

Pat McHale

Yes.

and legacy peak. is the for that XX% from automotive little board the So bit production generally across it's down the accessories. business, side, about parts In on us, a

off using spares. a So equipment being decent still environment. and it's buying still the They're they're peak, still bit Graco a down little

call been terms primarily a and of that chase. There to but of new America platforms or depressed new activity, capacity and I continue builds Europe either. plant In the it in projects retrofit that robust in both not say coming upgrades, environment of chase Pacific we and project out we are the Asia number expansion the last wouldn't of that North opportunities it's I and new has terms for years. would

we to word the have or or here stable And think over the opportunities it using we take we're do targeted have at us that also conversions I there three is, still share. opportunities are last okay new automotive two that is to products we've on. years for it's and that

don't That's So go continue the to after break to it's I my think not going market, going view. or make year. we -- this us

Matt Summerville

say season should quarter? launches are second propane end just in then, launched attention the to Are point Contractor be you paying and yet that sort to here fully you're the April, both come this in back would for of in And now we incremental as we of at Contractor, the home center? to there at

Pat McHale

No.

I launched got make of to we're and we've to are think majority a sell. ready difference, going that products the

Operator

[Operator you. Walt take Instructions] Thank from with Seaport Global Liptak our We'll question next Securities.

Walt Liptak

start I I mean, don't want the want seems to is to it Contractor, pass, horse this dead you kind a having be like get some on -- but beat to brought a about of being matter start year but a and and year, Does market do weather. ask maybe in second can be you you're to comp sector from the second in it it call quarter. get quarter too. the we on kind late, late housing were going Jeff here about the it And on go. the I of the of late a you uptick you whole is a I but up disappointed a -- do said but stronger lot could tough so the sort benefit the late a timing,

the habits year? U.S. the of overall flows with the start how sector Contractor and and that of through on -- housing just buying then the the to your So health is, I guess question thoughts late the the

Pat McHale

jobs the and in buying So see is, that the there's Contractors generally again terms see equipment. a positive then Contractors what we have jobs of we have they're and backlog when

going three in a and in months our to think environment be be a good out the to try spray two it's We on we launching and we're buy doing shows next here to we're to capitalize to paint going season new key equipment Contractor and our so, products. intend that. the to And for

Walt Liptak

market then with miss you did and in downtime new But second going equipment are did already, the or buy they're this they or Okay. like there is -- the year? equipment quarter the in the buying first use quarter different patterns to this

Pat McHale

don't No, of probably later, product any the missed late I going think to the are I sales you're you we time launching lose that But, mean, too. you're market. some going to the some get but

get You're There they have and going have it not and February didn't to equipment of bought somebody been a necessarily all. it else. available did have we may that would something in piece

I'd it's miss. of that the some a anticipate some just will demand So pushed get of and

Walt Liptak

And great. and you could Okay, which review end if strong EU wonder being segments the markets? were then again, in I which strong, in Europe specifically

Pat McHale

Yes.

anything I there. say over hot smoking there's that So wouldn't

And really they at look and results, were of pretty we're well our again, units. helped well that year a ex-currency take outlook. across pretty our business they supportive you helped If full okay our across,

environment a bit say process EMEA need do that bit job. and general, lighter the again, the a and with think in just we the stable But better. I I would industrial little is in little business our to overall

Operator

questions further conference over time, Pat now turn there Thank in McHale. the will I to queue. no you. the are this At

Pat McHale

the right. quarter of we going end have All bit little hopefully, are All to for thanks Catch you on morning. call. this fun a July. right. Well, time second everybody And more your

Operator

Thank Thank This have conference participating. you. for disconnect. a nice today. now our you concludes all may for day. parties All And

Graco (GGG) 25 Apr 192019 Q1 Earnings call transcript