GGG - Earnings call transcript Q2 2020

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Operator

Good morning, and welcome to the Second 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 ID number is 3676995. The replay will be available from -- through 1:00 p.m. XX, July Monday, Time, XXXX. Eastern information Graco presentation, a slide in is has available player. additional which webcast as PowerPoint the available part of conference management. of will answers request company, their up the after from the and for remarks At opening questions the open we

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

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

Caroline Chambers

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

for per or with million or $XX to million impairment a $XX adjustments, $X.XX share, Alco adjusting $XX quarter, translation information approximately Our the associated million by X of year. totaled including impairment conference quarter, points Net and call percentage XX% diluted second tax decreased may for in share. of while diluted be that totaled net the other After website $X.XX charges additional earnings added Sales slides changes currency on helpful. $XXX growth Acquisitions the or provide posted percentage quarter have the business. related this decrease per sales quarter been from and X totaled million selling point. this rates our last $X.XX the earnings

operating into tax, is entered gas reserve to significant recorded valve The gas exposure translation translation Alco, During sales quarter, Based within the in business, in which been negotiations included which $X and to on in including we million other charges have foreign current markets. impairment for oil million end finalized the through of investment loss and in negotiations Alco segment. was in revalued currency $X liability Process the other U.K. the sell, income recorded $XX divest natural the accumulated divestiture and year-to-date, third losses and the we of our recorded previously of second the second be has cleared quarter, quarter as was after operations unrecognized contributed of quarter, $XX noncash losses to in million comprehensive at foreign previously early of income. comprehensive July. other the second will the million unrecognized currency $XX million accumulated Alco

mix the volumes, can the effect the weigh double realized offsets partially strong declined percentage quarter below to and product digits rates gross channel and changes sales the in rates. year. in margin second of was gross in XX.X% and Industrial on and will unabsorbed the approximately channel also the to Process Our points Primarily increased, for as in gross rates. was factory volumes the while Contractor margin lower favorable. quarter, effect. and second Changes due segments mix, recovery to second pricing sales in so factory affect last half, margin in segment Without currency X costs translation sales product Realized due rate favorable continue pricing

team chain keep throughout to supply procurement our the our lines with running has been global quarter. Our working closely

expenses channel, segment, exercises year-to-date than $XXX effect tax XX% for adjusting last our nonrecurring of for of tax million the excess the benefits, compared Contractor the for and totaled XX effect Operating year-to-date due totaled in offset rate expenditures result than to products tax some The the quarter invest points well for is year, product totaled from from income certain as we excluding several as costs. benefits $XX the we are Capital $XX impairment, locations. flows expansion Cash capabilities than the home dividends and revenues. components manufacturing to lower in of by closely. option the $XXX reported the year. second continue higher the or percentage nondeductible impairment quarter reductions XX% million the million operations point center growth After supply a charges. and lower expenses, volume and year, as last last rate in monitoring products Cash chain percentage second situation tax last the decreased in as year-to-date. was the development as earnings stock the Given was more million of particularly year million stretched as the $XX quarter impairment based quarter, higher for to from other primarily X

We be a second also of which completed Process quarter, an acquisition part will the for $XX million in segment. the

for and forward share our For current exchange the completed bringing on are and for X% the earnings volume the last XX. approximately year XX are going approximately opportunistic final million negligible effective Based Unallocated the net week, comments, as the to of segment. in average expected share on is A $XX facility July make a repurchases currency $XX our the from issuances XXXX. headwind share items excluding comments. our effect the can mix over may expenses Page On the X-week by issuances is X-week of to the million XXXX year. of to slide expected excess approximately to expansion sales by turn year. of repurchases and expected We million These any call onetime of currently to total million, during tax through full $XX further to effective net on quarter, full share expected impact deck, approximately tax last the quarter. bookings we to XX% XX% including stock year related $XX benefits full for now for be the XXXX year, to rates note of few forward. products Pat of and to average the vary be rest I'll expenditures and year, repurchases $XX The rate booking corporate be by exchange projects. same of exercises. option for capital approximately further million be looking We and sales are

Patrick McHale

good wild quarter, second make the my I'll few status, sales environment in on our morning, our end the operational we Thank and a focus, commentary you, as And progress given Carol, quarter the through markets. trends focus and on observations everyone. strategic

rebates our to show for cases and Overall, factories we result of capitalize with reductions major without areas continued you of shown to centers and COVID-XX Consolidated spending pay the factories financial to remained incentives I'm labor have had positive our remained continue throughout results, need, experienced speed on trends home, facilities of expenses, put and with such our as expense we We able keep second discretionary and the fully quarter prudent resolve at Spending throughout normalize. initiatives. our people with workforce call, usual. as beyond productive. to reducing the in and our pressure quarter quarter. greater during at full-time High-risk variable told work to of employees quarter enough first order we've XXXX reductions. flexing improved use Our we've to on major us operational employees very pleased sequentially By growth resorting factories have what as certain the but Consistent various market and were without our position all been pandemic. on survive conditions full on or as layoffs our continued initiatives largely dealt and when the the reduced in distribution well we've have travel this the expense This our during Any second that will in may temporary management. short-term quarter. the disruption.

However, growth the quarter. Center in consistent June, to challenges business opened operational stores very And has segments. business the positive spike. in for meet of fire with resulting quarter, traffic. has the not the been April, outlook strong foot improved, Home to of for on half our the Professional the The Contractor paint paint channel the single-digit for resulting business up terrible demand been the is most between year. second After as Contractor improvement low for rebounded a a the

significant bounce facilities uncertainty appetite many activity we're of gas other to about after production to oil marginal end equipment and industrial in down, is I'm cloudy, experienced weigh optimistic Industrial Automotive the has not -- or globally, continues in orders. hand, slowly Access in to on and Our weak and in tanked see is the weak, half. for capital on April. yet second weigh outlook to overly the a is Industrial business business, sectors customer and quoting The remains improving the increased is back improvement users. most

used will strong quarter, questions. XXXX, drop in ready comfortable business market product With similar and such market of and which half were as we a comparably some continuing exposures, development, to market to as as business, approach drive despite of our markets that weaker once for environmental, invest markets has repeat stronger as performed have position rewarded uncertain. Process strategies, a we've Our being results for our We crisis and trends. outlook this again. in our approach range second the end to segment. didn't for lubrication Industrial the positive seen we're remains our end nicely Within investors us Operator, end severely this normalize. we April. business, subsequently to and our double end new new such digits down such I'm the and things look semiconductor growth our And wide during XXXX

Operator

[Operator Instructions].

comes from question Deane first Markets. with RBC Our Dray Capital

Deane Dray

characterize indication was back there. just of start Maybe contractor how demand that of market some underlying ratcheting can you pent-up demand the and demand? much we uptick with Can versus

Patrick McHale

they tell. pretty there bookings continue And It's at are recent of seen, of mean, I trend, you've well, looked obviously, at some week look -- that the you strong. current our to look segments X as data. to pretty really most if are if week that most the our market doing hard X Yes. you

So there's there's in to I some don't probably any actually there, measure way it. combination think but

Deane Dray

the in capacity? it flesh and then all all Or operational And their Good. is just opening issue there component you chain? shortages? it And the was supply suppliers Is on out your this the center? are home the can up of --

Patrick McHale

but scrambling. doing a been in we've really there, No, of been we've been it's lot -- and that's hanging tight,

we And So wanted a substantial try just rate. parts, hard it's from far, we things working but that normal haven't run keep our to out to going. of to flag increase run we're

Deane Dray

So like fair? clear, just Is to be not that you're missing stretched, that it's but sales. it's any

Patrick McHale

components. because do Not challenges We labor of have as supply well. of the

through working to But hopefully, we're we'll that. So out. pump continue units

Deane Dray

Great.

question are we the And of in last lessons normalized they ramp is a approaching to anything yet? would China you've as from consider up? be Just seen me you demand or back what observations that

Patrick McHale

I up. "normal no. screwed to both being I China" believe you're can the would more running rest Europe enough see don't normally. world are there's normalize China U.S. think going with and that say, production not to demand that And I that's the globally tied really of until of just the

Operator

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

Matt Summerville

A couple of questions.

give X-week the perhaps? some First, a you around can Pat, average geographic you color numbers bookings. bit around comment, Can those maybe

Patrick McHale

I Yes, project-based that business. be be say believe generally, would out. to But we That's could lumpy. Asia I continue Pacific didn't a that break --

what's is recently not the business by Pacific. the Asia America going can sure is have course, up bottomed. of discontinued. weighted I'm a And our as is business lot some the heavily has of that on we There European Hopefully, a signs contractors. into here been shutdowns read lot So whole healing North positive Europe with

the results America in So bookings pretty Contractor good look North positive. X-week number in are the making

Matt Summerville

in coming more again, Industrial versus of side is can be here. business, auto, you back you segment coming slower, specifically, obviously, what as it then to Industrial but a end mentioned on of color maybe faster pertains, auto bit the And probably I'm talking back in booking may what the terms just you're seeing average? you a market slower business then about in the is the can give piece that speak the What of little maybe just Construction category? And

Patrick McHale

Yes.

look big the So at take a our products lot estimates that's make because through tricky then go we there. a different when little applications, kind exposures distribution of that sell we bit some into and end so go we of a market

a happening and probably a in lot welcoming getting their products customers overall, creates for trying and terms Industrial our do automotive feel that of looking factories, products upgrade in the industrial open a arms -- to I not new are it's think which data customers our challenge to would have macro for of are you into what's And us, soft. working. that visitors off they with already them of just production front better are But get that at especially business. in with

I think So the to work have just out. things going second be patient let bit in little half to we're and a here

Operator

question And Sachs. Goldman Joe from next comes with our Ritchie

Joseph Ritchie

June a weeks let's July at Is in last down and assumed for was mean, in be down, I call Industrial X%. we the helpful the to being segments? second. from just Maybe if of to I going one just X way a right back and super take improvement average. each information, I is the it, thinking that the don't down the simple X-week the look June for across bookings into I about know XX%. July numbers down the Industrial the average average to business, but the get XX% have it X-week perfect If

Patrick McHale

look if we've may number, projects what mean. So I only at get to and takes as puts it year-over-year I or X-week and It's not would just a and you, try and may data detailed too a point. about comparables. got I were it

looks last favorable, think I the you if it. think ought to probably May, it and X and trend, I weeks, at most look that's read into the April, June you

Joseph Ritchie

fair enough. Fair into gotten July And again, say deeply And maybe of to on June? has just there. Okay. kind it that read than better to but trying following too not is it,

Patrick McHale

Say that again?

Joseph Ritchie

given Is June? has so July it X-week appear component? that It than gotten fair to better would then say the

Patrick McHale

X-week what that's would the bookings Yes, show.

Joseph Ritchie

decrementals you us then some achieve guys Okay. colors gave second to And that. and Great. able around quarter, for we're

thinking of half thinking know through of how you're guys some dependent, the demand decremental in As margins about it but to I is going second the XH? you year, be are

Patrick McHale

be you I for much pretty quarter. up what we lined should way. guys the think that they to first out They're similar after laid

And on said. and if declines revenue have that the see you'll dependent really mirror had it's originally So in in. we we declines in where margins revenue comes should revenue, what

Joseph Ritchie

get guess, Contractor. trends last the bit strong Okay, last Got little question kind in of constrained you any that any And seeing what in -- do at helping did maybe that's supply there visibility restock into there question sell Is it. maybe like is point? having rate ask where happening that? to Great. okay. differently around have a growth one super channel? And and segment. now of chains is then you're on Obviously, recently. that I -- the inventory in you're this kind I guess, the

Patrick McHale

Yes.

it believe In that, the I that overly of don't put number, aren't way. full, revenue actual that's shelves The equation. of terms our part

Operator

from question Company Halloran Baird Inc. next our & Mike W. take We'll with Robert

Michael Halloran

pieces. piece lots the moving Contractor So of here,

end market thinking strong new on demand, consumer, business the here X months versus means the as think what next second DIY? for in the it we weighing just your Some variability Pat, how also in of to about bringing But some a market And Maybe, just to over on end products. demand. sit end half? XX comments the surge beyond lot you -- the always you're unemployment

Patrick McHale

to out. the you be experience can our should rather now. be sprayers right own spray summer that having There's sprayed great "work-from-home" municipality that large right the an sell-in say a It's project for mix of interesting to a good of present going there look the it's couple My They were that don't next that forward. spraying now. lot of be and a some very another is a time people might towards your opportunity going Contractor, work tends never is And could our people to like we units people question. or People telling weren't and are here that. us the work across fall. some from the coin be could going are something their they do which ways. spray likely of there's large the on are, will lots hard fact work is should And on from and being that because took hopefully, at figure with larger to products. scenario before, demand across one different a this we observations a a a fantastic that really the smaller pie or our that units mix than at means sold is, this But home there's ahead neighbors. of buying side Contractor paint if Yes, It other personal that go It that home. market

have mean, there's to many seeing. so I moving right and nobody what it's I'm we'll So kind that's now kind of but of knows, see. early, and

Michael Halloran

the not the think, That's about expressed, particularly of on And remarks Industrial back I optimistic side, half prepared helpful. the year.

already than trends weeks X sequential what were they being of the You've over kind last the before better that. hatched

thinking curious, to mean float things you're kind get Just we're going of the necessarily something you just it's Or expecting the of a to along little -- have not optimism bottomed worse. optimism, while? think different? for I and do lack are things you

Patrick McHale

what's pandemic how react. I real does don't time the expect was obviously, that could, knows question But a view and reaction. going process that concerned typically, And that see go May happen that, you is we're going severe the some pretty going to to to And But kind mean, like? of April, see we test forward sort think back overly in how people we new you not lows frame. look bounce and that I with those, when that what test is healing I'm lows. us is my is, the a had long of back. nobody and I

Michael Halloran

sense. division And is is that one the piece? product there Contractor SaniSpray. And One, think which opportunity Or in? then just then introduction, is there? in in Makes last do what The the the Is piece? that question. set you new that Industrial two,

Patrick McHale

the one opportunity out at what new is focused it data us. would the really in Contractor and the a some back COVID. the was that I business. a that were was before That's see of than lion's space And for we it can but got say modest, division, coming moment wasn't We was more We've on market share that on.

However, last with in interesting. all for that business. decided some potential try obviously, And to three capture the months, the more the division segment the changes looks CED to a reallocate resources that of to lot

Or And idea So what have people Or potential think old the stay? the go few it's the going I of at a a to that the back months. learn I Are here to think no continue And learn that with fact course we're pandemic comfortable to to lot normal. to we starts long-term we'll Are next new going ways? really is. either to to people as about get are over And I the going this the people of subside. when more they vaccine? get talking even sanitize? more of a point

be been forward the there's one going then more that if And than that think a that's disinfecting I says for rear. good us. sanitization the opportunity to going that in has and be scenario So there would there's lot case,

Operator

question comes with Hammond Jeffrey from KeyBanc Inc. Capital Next Markets

Jeffrey Hammond

spike categories? remind kind booking between how the different Professional out two the contractor the DIY between you starkly rates is maybe on what maybe can mix and of and Just those just are bookings, us

Mark Sheahan

the the differences Yes, in this Center business. product the We categories rates part is booking break business between Home and don't Pro the Mark. or the of Jeff, out

commentary the June during Home pick hot we've see the the was Pro And was the until that think didn't quarter. Center that up then really, I time business we had pretty actually frame. business, that

Jeffrey Hammond

on facing about gas think now do Alco and business? the why of how you oil just then And your And businesses? kind other Okay.

Patrick McHale

over trying write-off the to a So on It was worked barrel. really purchase about We Really, it hard back we've $XXX we X.X were kind a We to able that it thing took years at period XXXX. effort around, there a of going. fix -- turn Alco? never year, of in that ditch on just to of successful. -- ill-timed ago, couple resources a business. Graco actually in and an big time And X why we oil that a weren't put long get now we last we for

with good So we tired not and oil and was gas decided very money, being time the to on just positive flush it getting of toilet. finally our the a losing market outlook

Jeffrey Hammond

other Are profitable, and the asset? gas oil a unique more businesses that's facing much and

Patrick McHale

do we X as and Industrial there, fair products made production. they're significant And ups business do be So our those other business. And gas have to with more We oil sectors. we oil amount have divisions. not in and in really only a stable directly tend have downs related to kind that that are of of and in gas we while

oil The gas top doesn't pretty and is, I'll us. or through market fair cycle. well And say, does generate been industries. poor have other although performed that since when we It is exposed profitability also, well nicely to any and business of a kind goes on it. take the And that business lumps it's profitable. other And oil bad. has It's performing bought exposed, that gas number it line of its losses the for remained we

not anything that's positioned large So right now feel stinks. okay we're of having overall, that I terms in really like

Operator

Our & Blair Company. with comes question next from Bryan Oppenheimer

Bryan Blair

cause some data positively negatively? unusual back your a there, to Industrial, the bookings in year Circling anything prior on lumpiness, can bit little there thinking System and I'm period? both but the specifically business level was on set X-week

Mark Sheahan

mind, to comes Bryan. Nothing

time nothing time be it during and there, be with There's that the a there's period. some can remember improvement. period big here there self-explanatory short that choppiness it's But think pretty there. but should that I significant caveat and I

Bryan Blair

We've and back on have in from potential to for expectations seller accelerate a you And your maybe it. Got M&A the funnel more heard deal companies Okay. half? become that little a the offer can reasonable. a quick few flow update then

pipeline? that Just applies your curious if to

Mark Sheahan

the We Bryan. I raising and acquired we do. that businesses bankers, pipeline yet, that saying there. external number their hands people The the pipeline, we the that But still actually et -- have that to, the seen haven't are think right it's would I that still we hope they really right small. talk cetera, now. want agree to now be of very is market Most quiet is that of

comes down So if have expectations the and quiet. to back, we're pretty ready it's But go. the come market for now, think I

Operator

comes Our Global LLC. next question from with Walter Securities Seaport Liptak

Walter Liptak

to move your hearing the needle meet cases on of demand growth going and that out in I a virus wondering the wonder distributors ask how some the growth. the think SaniSpray. And you're the there's you sold Because material up? way it, little rate? if back And going of talked about Was to bit wanted specially, growth? to enough about half products to about the a Contractor product that we're with new I market versus the

Patrick McHale

product Contractor Yes. year-over-year have the The product of then little nice line, projects with majority of core have that the good sold our a is we CED. we bump in business development out and

I the looks it relatively numbers So if and this that you'd at looked probably, at you'd you say year, normal. think look

SaniSpray back again, for Contractor give a like Home good but of June, it's quarter came the reflective Home with about terms bad did has those Center it's been any in Pro incremental or sharply up Paint making markets In market or us Center business it bad market. -- all without with talked Both without specifically not you SaniSpray, not Mark and a SaniSpray. to or as sales,

So be did some get carrying on products. get we sell core we we look end SaniSpray, and to the that us. and the will not little that's a but for our need at incremental bullet overall If we bit, nice, market, the

Walter Liptak

on on repurchase, program? us it. can Okay. what's repurchase And left Got you the share remind then share

Mark Sheahan

think that we XX.X have remaining program. million I shares about under

Operator

At I are time, there turn this over McHale. no Instructions]. now to further the conference Pat [Operator will questions.

Patrick McHale

interesting look call. quarter, time, sure interesting talking joining forward agree. everyone. I'm thanks few for months. to an thing an our the a again would you as keep to right, going Well, And All and to in we're you doing Quite

Operator

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

Graco (GGG) 23 Jul 202020 Q2 Earnings call transcript