GGG - Earnings call transcript Q2 2022

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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 visiting the company's website at www.graco.com. Graco has additional information available in a PowerPoint slide presentation which is available as part of the webcast player. At the request of the company, we will open the conference up for questions and answers after the opening remarks from management.

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

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

Kathryn Schoenrock

turning everyone, overview morning, Mark with provide and Good our joining thank our Mark for of here quarterly call a and call. I today I'm before for additional David the will brief over discussion. Lowe. to Sheahan you results

X% or $XXX both million on $XX quarter or The effect decreasing million sales was million. X% earnings our diluted or of quarter slides Reported per sales information headwind net and quarter on additional earnings are website conference Yesterday, our the for the call from an by XX-Q in of sales a Form year. were the provide $X second share. our million, increase reported $XXX $X.XX quarter second and currency substantial by and of quarter. translation we earnings, of quarter last decreasing X% second rates on Our net and

X% unfavorable year. to remainder the and last full decrease the exchange continue At current the by translation the earnings to first be quarter. similar points from XXX quarter points a rates, of down currency of gross the experienced second rates expect second by the from basis and the half translation to X% quarter. we second was The sales effect with to challenge of the in rate expect XXX being for year basis was We in what margin down impact year

the During the quarter, the material levels of accelerated year. costs previous already elevated from

Our costs of gross pricing the year not margin the additional these the beginning enough actions impacts on offset rate. to of were

dollar we cost the increases segments price actions and implementing we interim our the effect Given XXXX begin actions are throughout and a costs experiencing, on the At across quarter. to are These input all third increases volumes, will take basis. cost will pricing current offset expect we pricing that regions. pressures

mostly year, year, operations of commodities decreased expenses and made the the the be Of tax will and quarter million volatile $XX the million cost Sales volume-based or flows monitored. than will $X incentive many remain closely in to are and rates Operating annual against higher to in of a course, decreased expenses $XX quarter. X% year. to demand. purchases this rate. first of for high tax last due and rate inventory the XX% The comparable the the for translation rates $X also of U.S. effects Currency foreign rate from second in from earnings by at adjusted XX%. by estimated expenses unfavorable the our million. driven quarter $XXX decrease likely anticipate operating XX% continue the tax be Cash meet expect was quarter decreased last will We million annual million trend payments increased

we for in XXXX. year-to-date, the have million, eliminate shares will $XXX million For than repurchased more which dilution X.X

payments debt, expenditures of private our expansion million million. of and of projects with We facility $XX placement also $XX made related million million dividend $XX prepaid capital to had $XX

further call and be discussion. over slide deck I'll call capital now unallocated XX. on estimate year found in for corporate the full for Page conference our expense the turn can expenditures to Finally, Mark

Mark Sheahan

morning, Kathy, you, and Thank everyone. good

positive, of my Contractor, We North segments. and to Russia sales contributed our declines. labor record on China Contractor but this saw the and In in good Asia America a at quarter shortages, morning shutdown Process in declines with component Pacific Industrial quarter. availability all the constant EMEA all remained in remained Product basis. extended All to and sales due be an organic sales Lost had challenging constraints comments second reportable the experienced suppliers. currency in will to regions. double-digit growth modest and broad-based

$XXX a million period than the which quarter, was $XX Our than the consolidated the million of end higher is at million end and year last $XXX at ago. higher backlog of same the year

since XXXX, expand still either material our rise, round our motors, suppliers thing us to during output improving These capacity. Electronic higher and disruptions, million experiencing with castings improving first $XX implementing we in year XXXX their consistent. combined a we the investments, on we of are $XXX remaining regular the to strong increased more invested weekly gas with component to same has output reach demand supply or engines board products bottlenecks. availability, component the able be be outlook. performance certain costs remain and to top with deliver to our that assemblies, out-the-door manufacturing XX increased decline this While beginning us these of August. of receipts will by period. from have before allowed global electric expansion challenges, our have we continued components, gives Since This Despite support Since increases revenue in resulting confidence segments. factory nearly the another million will prices XX% commenting enough end price commodity One have the was of quarter. X backlog starting

beginning we've we given our cadence the resuming done not historically, operating the We next are recognize at cadence normal of isolated year. is anticipate actions than the While different what current pricing environment. our

up Contractor single commentary Now a last growth, to this segments. was order Incoming all regions. delayed slowed in low home rates resulted shortages in in lower customers several on component mortgage long rates for record have some second rising environment Ongoing of quarter. very sales. segment quarter the following segment year an turning After shipments of strong to our digits and years the in have and

However, forecasts and and commercial for activity contractors construction positive. remain remodeling remain busy

addition, nearly elevated records in end and improved components. pandemic-related toward quarter these and segment grew for despite for sixth for posted both is of incremental from Process robust in quarter, saw $XX compared the in earnings. the year of resulting Asia Profitability cost of We sales operating environmental mobility in rates due In year XX%. remains lower product of the key strong multiple of still segment negative ago. and million when in year process semiconductor to categories. compared demand end the the were quarter in earlier to double is last and time largely which China, restrictions grew The and margins backlog actions. its XX% to revenue achieved $XX of improved the million, up reportable Pacific end operating XX% last $XX impacts in near Industrial the is the double-digit products. The pricing on up same lifted. Booking sequentially we in have same an for the sales and pumps, Backlog Profitability since impact quarter period all the The year ago. records demand a lubrication quarter strong consecutive was million second the growth. strength Despite and regions earnings resulting segment quarter for some a equipment, pressures shutdowns worldwide of expenses

segments. in in outlook. on Americas to our all firm the Demand remains Moving

also Our incoming EMEA in affected geopolitical outlook for remains order and shutdowns due rates. softening to China economic cautious conditions uncertainty, pandemic-related

restrictions for are In revenue improve of our to prepared reportable the customer day in digits of However, operating constant confirming basis, all to the deliver commercial markets our with pricing XXXX major every lifted, customers we significantly. guidance growth these have and high service. once record saw our contributions to operational Operator, many single we we That remarks. want plus and were an expected orders I for levels, thank hurdles backlog this actions, ready our difficult A-plus of seen overcoming our closing, striving concludes They on segment. make effects employees organic we're in every With currency near questions. environment. our

Operator

come first with from Deane Instructions]. will Dray RBC question Capital Markets. [Operator Today's

Deane Dray

And this or -- so of back trigger, legacy decision? channel it how makes be start from -- to way off. decision intra-year to we on the internally, sales you because makes out the are just implement keeping bit what the sense, And was hesitant disruption And the well. perfect know January over reason it how But then held but cadence reach for deciding we the factor? then the perfect with thank the maybe at sense. in that expect I you deal was increase? did it the always I these a outside price you'll it clarifying, you you just Can you your as anguished the was circumstances. partners Europe a bigger pulling made at extraordinary was and But little to but because look all it And

Mark Sheahan

Mark. Yes, Deane, it's

we is do facts started then our I as lot bit and we creep QX, we we of first be a quarter. the what half or lot year, it. input So what to and based variance of at. since a planned they P&L, together around make became whole beginning see little beginning on to of We through drama kind did month we to accelerated it what get negative March the the debate work into simply start between there that like which in cost of more our versus PPV, and as are team in actually meaningful. wasn't a costs say, of to of call a to the And decisions the of the put And coming the would latter started

organization. that facts We So to that were case the and of the with an increases sharing recognize waiting. had in we we customers, distributors components raise as now make lot saying prices good pretty as we we the a team. transparent really looked a being at major that a versus meet we that by our substantial our And buy across did board, to really

wasn't all actions participated, there different going that Everyone all pricing regions participating the drama. and business much all in we're take. so to are different And the the segments

had really major But haven't likes of from And a so our or any far, nobody it's right? from -- customers pushback done. what any we've increase, price we distributors been

Deane Dray

free color. that if at Got All then but I usually do that on suggest would the quarter? in don't everywhere. and follow-up some Well, And and inventory buybacks loudly, good with And as David. flow it. right, dynamics we're a you that's distributors buffer you complain because Can so of inventory, cash for it. really I there comment higher appreciate all. just seeing the did

David Lowe

did We price. in think $XX the QX, we a think our of we question. buyback in share about I in purchase most $XX -- or shares million I'll buyback about the But start committed I with bought approximately first XXX,XXX quarter. activity at

So saw cash flow, cash prior share in versus the lion's would share of the to flow now add you're had -- on on in QX. of done already that I QX. And been reduction right. QX creep the operating And we improvement

would build inventory was big course of golden -- inventory for been normal screws items receive we levels -- say, as waiting of to we're inventory because our as as elevated lot component have that we rolls to those that we investment a -- And and committed cases, we receive One that I'd in in along. expect the year those some as that level normalize chips, the the work through business, current environment and cases the bolts in are of the the screw. we O-rings, exotic ongoing

Operator

with line Boroditsky from Saree come Our will next the Jefferies. question of

Saree Boroditsky

So around although relatively lowest It I are XX% XXXX gross for guys. margins since, was believe, the you good. still level

in increase, and new about are half into XXXX? margins So with thinking the how you August second gross price the

Mark Sheahan

Yes.

margin points So really not we've of pressures about rates, cost gross the but translation the XXX the currency only about, quarter. the this knocked off had by, basis we talked that think, rates also I

those year year. And through that that the not last is made like first this piece doing, do. of we long and and would year PPV, cycle, which really we estimate what set next say, to we that We to or And it's to things and look similar But actions that pricing into, before, looked I'd like hard we're the heading experiencing. balance offset then the referenced were I of out. a we for did half our when obviously neutralize tend much actions to even looked there's manage, PPV that standpoint. the from we So pricing an at what can our at we

little go up, camp to accelerate. Do card if go down negative that up to rate. to margin the you're if come bit of that are be here? wild they where maybe here? even beneficial moderate, they be costs to going is flat? is, gross they're go they thinks going But Do in if rate sort from and our the the So a they do stay costs costs if Obviously, neutral from and that inflation at they that should stay slightly -- would down

So that's head, I do answer to that the add, anything can but Kathy have please is probably so. her if you. best you give nodding

Kathryn Schoenrock

No, up I it think really sums that well.

David Lowe

touched a -- cost you that those it, basis. cost price would kept add implemented costs a increase incremental dollar on a has on the the And dollar we of on I on the pricing I at the beginning I has think basis, that we just dollar think -- basis, Kathy, have year. offset

Mark were make would components, continue as where the this watching certain to prices dollar increase offset basis. that price However, time certain probability further for on, certain costs was on concluded a to the a we in QX, that touched adjustment incremental to to with we costs make key

Saree Boroditsky

you then net you position. but did on just a have Obviously, quarter, the still And follow-up a in buybacks little of cash question. bit buyback the a

Given the more sense thinking year-to-date. you and stock sizable to do price How with cash? are does that about make it reductions anything

David Lowe

here. think take Well, I -- a our I'll start

has opportunistic. haul strategy be Our long and over to continues the been

current one we as where the macroeconomic in and commercially we environment think I challenges opportunities world. see look at the that

have in the when so. know, aggressively capital a you to position make the we and strong As to position are move we do decision

Mark Sheahan

but to priority eliminate year to the a a our We'll right. powder think see which able we're this really on again done. when regular go do We're buybacks to large creep, be real hope happens. I dry that is as keeping our now. the strategic it David we basis, was forward, And we've to and opportunistic what right Yes, comes then

Saree Boroditsky

internally talk any optimal at? there should the about Is look what balance sheet

Mark Sheahan

optimal Internally sheet. that Was the balance question?

Saree Boroditsky

should look What like? it Yes.

Mark Sheahan

that. hopefully and an also of That's that, that of. we we targets buybacks. aren't increase of our run balance leverage if obviously it the absorb But or off some stages the mandates lot specific early obviously, strategy, we to That's of there, we're objective. when goal. We targets try in the can the like have have business to like that. anything And to process or M&A at Well, management. any of successful our in flexibility. don't trying shoot we doing look we We're based sheet things share for that no a But deploy which or comes will trying there's that

David Lowe

that it call no want come the we capacity the balance be view of real opportunities Yes, own is I to it strategy optimization. alternative concept My financing the the when understand have about along. the And in how of, is test I'll sheet that market there's scenarios. opportunistic doubt performs a it, real-world in to

hundred M&A yet. million will as the willingly expenditure As we good an we business we're -- you've of capital in last have program already several are, we're couple dollars over major program has in opportunities. a should make drawn the not Mark as and investments we said, years, seen that that coming of investments, middle And we I completed say, see

plans we strategies mistake. change to our event So that would certainly the short in it not underlying that's think a don't of positive central a business want interrupt -- conditions financial any as in term, is view to the to our would evaluation of we strategic

Operator

will That Markets. with the Capital One moment our Buscaglia from come Andrew Berenberg of line question. for next

Andrew Buscaglia

of margin excellent. I'm price of And good think wondering worst-case so internally? mentality and the could affecting through this Europe businesses segments what's of So impacted do concerns so there Everything or just was or help increases. segments looks -- a your great wonder I are the on can your get -- your your thing that other quarter the kind scenarios. recessionary if deteriorate? dynamics and right broadly things where are starting sort scenario to most around we're front question we maybe are the and now, will us you things

Mark Sheahan

Yes.

production we're are going Sales that cutting the likely look do rates a U.S. overall try forecast look meantime, bit. the the like when it you And on at stopping But at want not we're what's in. in there grow may not slowdown. or we being is happen facts. closest. with for up again, mean, to on on you of our you business the and anything to in going happening, areas homes with industrial what over and back back. at back orders we're the what's are pulled here. operate Europe to to happening not come are little coming to stuff what's look And existing probably don't if the So is GDP keeping of may I pulling then happening just and in. starts terms that's in trying housing in Business geopolitical over a eye when certainly, We probably actually the to from jump still expenses. on But what good. on Those gun We're

can dime just we Graco, more usual or tightly, We need good But are adjust we've things less quickly to. a sure At got pretty making smart if decisions. managing on a And us. we the and we as that can turn business if making for here. P&L pretty we're it's change, team,

good shape. pretty like said, I are today, sit we feel here as you in things So as

in to numbers the for that here a that targeting have year got we're huge models. We the kind hopefully, backlog, everyone of has we're their up able put and

Andrew Buscaglia

the Industrial because is it's of kind on And really of and segment focusing of sort this of just pent-up demand investment on. in maybe under strong growth years going the

of pretty is it segment move Europe are Europe business? or you impactful. pertains into believe portion what are recession how does Or What I that Europe think here? biggest it's thinking you a out if will So that to as guess seeing of based what you on that based plunge the I -- industrial,

Mark Sheahan

Yes.

I and buckets. you think biggest is business, X And European to business chunk of nice biggest into were -- Europe kind sorry, if is the I'm Industrial probably chunk put for of different our of a it our really it's us. profitable the

which not or when so that's They more more a segments, those years across our project-based. liquid all powder and that and again, sealant then equipment but XX get had a traditional backlog businesses have that business got looking the sold Graco bit businesses, through of you've in into business that visibility is too overall X our for which business, and portfolio we on legacy got go outlook. are our orders. bit to about You've now. and little talk distribution integrators adhesive And typically are that. our the factor to we And granular, things like and our little finishing And we've channel Gema a equation

So and sort and in Asia we stronger Europe, do going on roll maybe think as it get everywhere. then and different you that weaker that, going at, others. to up forecast you okay, can us of look you Pacific, to Asia, this the China, including high either what what's what growth, have of single-digit is that's happen different part And are pockets than of businesses or a

of They're team they're don't a a really mixed with feel near they they've of end happens. I Personally, going here what the in think changing bag. I do guess markets. on business on it's plenty going see the that Europe, got see activities we'll speaking term. that there's optimistic. So in And we good still there, like over lot And over in our project

David Lowe

strength especially Mark No, and seems to the comprehensive the the geographies incremental the geographically the series segment, it has not quality granular, the of businesses think I that good especially the both around segment I for was impress foundation, margin very the of for the including going and the just just space side, demand business, think, in get breadth the guess summarize, to gave Industrial markets. would business pricing way served realized a that mix very mix and very and the margin answer capability, broad. me, very say, have been is, backlog I we've seen continues to a of good world, solid, I generate. of And of is I And of solid. too that products, to the the on

Operator

for our question, will One Thomas Morgan with come the Johnson Stanley. moment from that line next of

Thomas Johnson

is on Connor. Thomas actually This for

and be there. mix maybe the about, kind of helpful go remodeling for to back demand but construction, to there versus us magnitude just Maybe able through just I if help risks of up Could from new risks potential of up here, home the Contractor realize frame demand buckets here? to business. us we just Sorry kind market should builds end the for the maybe commercial you you're and where how think rough versus would think those

Mark Sheahan

Yes.

different including all projects. groups don't good now pro versus busy, that right But will a backlog they're projects, paint. do-it-yourself pretty the say remodeling speaking, we They're the is what is working through. on residential feel out today. working we commercial good contractor So of pro where they about break in different terms projects, Generally I really projects of business kinds they're that and of have

look is consumer really DIY they So the are Is standpoint. we And a down. customers. to are contractor the think What's foot sprayers is home the back? people. from pretty pull for into Are going concerned the the of inflation? great there? don't about where on I centers, I that line. characterize now in like the more have of professional to pro side where of fairly area at used probably a part traffic right going line broad people The those profitable hang at You than the like serves a going DIY with is more basis, is exactly on consumer course, painting our our good of base part visibility would market but product healthy And daily

similar probably in You to guys I one again, probably on. it's that, of America know over would regions, eye that in And more professional but product that's my area North keep the a wanting the working. be factor in Labor for think most another part, mix. you labor There center but got dynamics. Europe, busy. is that is They're the some They about should They're home is backlog. tight. again, because

so to power a do throwing but job, equipment efficient, labor number worry by have you're finding labor you And using job about also to manual versus one, to more in market. a tight

we're We'll built think terms good on in happens, I term. long still way So pretty still market shape. North that see of in bullish what here We're in America. under houses

I and That up, think like get million a in good something ultimately will million or spot. X we're caught think units. we X.X

Operator

our of from come D.A. Matt moment question line and the with will One for that Summerville Davidson. next

Matt Summerville

QX? was what any to greater shortages lesser David, in way the there or QX I experienced would that feel then have this impact impact versus you the quantify component Mark, to follow-up. like do sales you in is And And had on a quarter? have

Mark Sheahan

Yes, start current of with state. I'll kind

that wanted been we for hard in much I quarter. today it have time, ago. from shape. could we think than but here to on was months have everything but of yet, me $XX knock We're was suppliers things in higher. better even like It's know revenue higher feels the had woods how the were would to are off about backlog the better. been it's our million out it not gotten throughput able in It exactly sure, to definitely better We of X if the

end look levels when If we started you just high and the additional about at here backlog, we were since year, off. of the $XX happened year the what's million it's at of

investments. you were hopefully, up we and sure, for to a We've be. give running. lot in, the throughput that how lot made of be in a as year. rest better, throughout a I We've really equipment of But number our will tools, would gets machine big are the of that can't here backlog new new we factories throughput So make better, back. a and held to dent got as hope coming

Matt Summerville

out to way would follow-up, a -- price. XXX basis maybe go in XXX typical then typically of for I year, you And as more any is typical, know look a there and points

of sure about which increase us How the would we low be? you're As X year, than putting magnitude that? up double obviously, what think what that. is you price considerably Is then in And out understand I'm digits, of you us through a help fold higher high earlier might add this in we can try single the we those Should to with thinking be help and digits? there the way QX.

Mark Sheahan

is The you is really the single-digit I give the best that, currency And And do can the we outlook year. can't you. Yes. outlook. beyond high constant organic for help

Operator

the next moment of One And from that Instructions]. [Operator come with Securities. Walter question. will for our line Liptak Seaport Global

Walter Liptak

I just wanted to do a couple of follow-ups.

got you do. are contractors a home So I that still to work right? home But lot centers are lower throughput, that lower great. They've sell-through saying seeing of think painters Is doing the centers. about you were what pro at the

David Lowe

own I months. some of home has that centers of traffic the for that data reported lower. we think being our sort I that's in is as And think, evident that, the stuff other team Well, the and from foot some published is been hear

for they pro of the earlier paint to in as On check And when in just Mark's help I suggests contractors a recruit level that they think, we the future. painters but they're today to going arena hiring foreseeable of alluded just underline talk not team very side, recently even They're -- can professional week, is own with. labor couple much in as which interested them. pretty when the a painters very also in additional points, the it good, activity to to, savings, to be we our

Mark Sheahan

to there that eye Yes. want be was more could keep and the an think the I -- asked question at? Walt, those center were things you eye to for fact on. an home some areas low I us things referenced the what where weakness, are are some I on comments DIY, might was, And the what traffic, consumer look think end, are you keeping Where the my I

Walter Liptak

much Okay. to us, think I is is centers? small. how fairly just home sales it's And refresh

Mark Sheahan

out. out. Yes, we do that don't not that We break break

Walter Liptak

And is maybe of this you how in a maybe much but Europe guys similar do In EMEA, total way contractor one. well, sales? -- Europe, Graco

Mark Sheahan

I mean, you the David, do number? have

Kathryn Schoenrock

XX%. It's around XX%,

David Lowe

Of the total.

Kathryn Schoenrock

total. Yes,

Walter Liptak

Okay. contractors, within Europe? much then contractor there Great. And is in

Mark Sheahan

it's yes, sizable a nice Yes, business.

David Lowe

coatings the it in presence and Europe, is, a some level Europe. I of the as largely Russia Middle protective gives segment would paint pro which well East. largest It's including it say, markets And single in are as Eastern like market,

Operator

questions like Mr. the further turn in no Mark remarks. for now to showing any conference I'm Sheahan would back queue closing the time. I over at this to

Mark Sheahan

Okay. in Well, thank today's for call. you participating

days, I supposed to just professionalism give competencies, months. get conclude, manufacturing team more to lifted, like than purchasing here in were X during I'm chain really to our responded restrictions quarter Manufacturing shout-out was business, to is people a orders, and we've the challenge happy than we our other rewarding had to one which door they teams it the started product Before their teams X some It delivering the I'd last to we especially products got very really our Graco see rise the and and to quarter during think strongest for got definitely ridiculous about. constraints. they more company's the it's the quickly, me cost this supply dedication and of the to X back out into where thank pressures once very like and in battle been to the quick for at history. last went the initially and China years, lockdown. also I'd any And

months. an last for Nobody and of to them events have in for continues efforts The I to commitment challenging the there. for Finally, Europe. transpired organization their Graco. over listening, extremely X I'd majeure It's today's and the with been us the like That dedication call. a have our to concludes hope force impress time in Thanks you acknowledge predicted that day. great everyone and team

Operator

on dialing gentlemen, and thank conference. Ladies for you in

now disconnect, have may day. and You a wonderful

Graco (GGG) 29 Jul 222022 Q2 Earnings call transcript