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TheStreet Open House

Graco Reports Record Second Quarter Sales, Acquired Businesses Contribute To Results

Stocks in this article: GGG

Gross profit margin, expressed as a percentage of sales, was 52 percent for the quarter and 54 percent year-to-date, down 4 percentage points from the second quarter last year and 3 percentage points lower than last year-to-date. Non-recurring purchase accounting effects totaling $7 million related to inventory, reduced the margin rate by approximately 3 percentage points for the quarter and 1½ points year-to date. Unfavorable currency translation effects reduced the margin rate by approximately 1 percentage point for both the quarter and year-to-date.

Total operating expenses increased $13 million for the quarter and $20 million year-to-date. Powder Finishing operations accounted for $8 million of the quarter and year-to-date increases. Acquisition expenses accounted for another $5 million of the increase for the quarter and $9 million of the year-to-date increase.

Interest expense increased $4 million for the quarter and $7 million year-to-date due to higher borrowing levels. Other expense (income) includes $4 million of dividends received from the Liquid Finishing businesses that are required to be held separate from the Company’s other businesses and accounted for as a cost-method investment.

The effective income tax rates of 32 percent for the quarter and 33 percent for the year-to-date are consistent with the comparable periods last year. This year’s rate is reduced by the effect of the investment income from the Liquid Finishing businesses held separate. Last year’s rate was reduced by the effect of the federal R&D credit that is not available in 2012.

 
Segment Results
 

Certain measurements of segment operations are summarized below:

       
Thirteen Weeks Twenty-six Weeks
Industrial     Contractor     Lubrication Industrial     Contractor     Lubrication
 
Net sales (in millions) $ 158.2 $ 82.1 $ 27.9 $ 292.3 $ 154.1 $ 55.9
Percentage change
from last year
Sales 22 % 2 % 13 % 16 % 2 % 13 %
Operating earnings (5 )% 9 % 37 % 1 % 11 % 25 %
Operating earnings as a
percentage of net sales

    2012

27 % 22 % 20 % 31 % 20 % 21 %

    2011

35 % 20 % 16 % 36 % 18 % 19 %
 

Industrial segment sales increased 22 percent for the quarter and 16 percent year-to-date, mostly from the addition of Powder Finishing operations. Without Powder Finishing, sales for the quarter increased 6 percent in the Americas, decreased 6 percent in Europe (1 percent increase at consistent translation rates) and decreased 9 percent in Asia Pacific. On the same basis, year-to-date sales increased 9 percent in the Americas, were flat in Europe (6 percent increase at consistent translation rates) and decreased 1 percent in Asia Pacific. Purchase accounting effects related to inventory reduced the operating margin for the quarter by approximately 4 percentage points. Intangibles amortization charges and changes in currency translation also adversely affected operating earnings in the Industrial segment.

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