Graco Reports Challenging Start to the Year

SPRAY FOAM NEWS – April 26, 2024 – On Wednesday (April 24), equipment manufacturer Graco Inc. released its first-quarter financial results for 2024, reporting a 15% decrease in operating earnings for the quarter.

According to the release, sales decreased 8% in the Americas, increased 2% (flat at consistent translation rates) in the EMEA region and decreased 16% (14% at consistent translation rates) in the Asia Pacific region. Net sales for the first quarter, which ended on March 29, decreased 7% from the same period last year.

The gross profit margin rate for the quarter was reported to slightly improve from the first quarter of last year. Additionally, the favorable effect of realized price increases more than offset the unfavorable product and channel mix, the company said.

Total operating expenses for the quarter increased $5 million (4%) compared to last year, including about $3 million (2 percentage points) of increased unallocated corporate operating expense and $1 million (1 percentage point) of increases in product development spending.

“Sales were down in all segments and regions for the first quarter, with the exception of EMEA Contractor,” said Mark Sheahan, Graco's President and CEO.

“The quarter was weaker than expected, which creates a challenging start to the year. Gross margins improved slightly, however lower sales volume negatively impacted operating earnings in the quarter.”

Additionally, the drop in operating earnings was reportedly caused by an improved gross profit margin rate failing to offset lower sales volume and higher operating expenses. The company stated that other income for the quarter increased $6 million from the comparable period last year, largely due to increased interest income of approximately $4 million.

The effective income tax rate was reportedly 13%, down about 5 percentage points from last year. The decrease was reportedly mainly due to an increase in excess tax benefits related to stock option exercises.

Segment Results

In the Contractor Segment, net sales at the end of the three-month period came in at $230 million. Continued weakness in North American construction markets led to a 6% decrease in sales for the quarter.

Unfavorable product and channel mix and increased spending related to product development also reportedly helped cause a decrease of 1 percentage point in the operating margin rate for the quarter. Improved price realization and lower product costs were also unable to offset the decline in the operating margin rate.

For the Industrial Segment, net sales at the end of the three-month period came in at $142 million. Segment sales decreased in all regions for the quarter, including a double-digit decrease in Asia Pacific, where economic activity weakened compared to last year.

The decline was reportedly in part offset by an increase in powder finishing system sales in the Americas. The first quarter operating margin rate for this segment decreased by 3 percentage points, mainly due to the unfavorable effects of product and channel mix and expense leverage.

In the Process Segment, net sales for Q1 came in at $120.2 million. Process segment sales decreased in all regions for the quarter due to weakness in the semiconductor product application. The operating margin rate for this segment decreased by about 1 percentage point as price realization was more than offset by unfavorable expense leverage on lower sales volume.

“Despite the slow start to the year, incoming order rates gained momentum as the quarter progressed. Improved order rates together with exciting new products scheduled to launch in the second quarter support our outlook for the year,” said Sheahan. “We are reaffirming our full-year revenue guidance of low single-digit growth on an organic, constant currency basis.”

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