• Fourth Quarter Sales: $549 million, a decrease of 3% from the same quarter last year.
• Acquisitions Contribution: 3% sales growth in the quarter.
• Net Earnings: $109 million, a decrease of 1% for the quarter.
• Adjusted Non-GAAP Net Earnings: $110 million, a decrease of 20%.
• Gross Margin Rate: Decreased by 200 basis points in the quarter.
• Operating Expenses: Increased by $19 million or 15% in the quarter.
• Operating Margin Rate: 24% compared to 30% for the same quarter last year.
• Industrial Segment Operating Margin Rate: 33% compared to 37% for the same quarter last year.
• Process Segment Operating Margin Rate: 29% compared to 28% for the same quarter last year.
• Contractor Segment Operating Margin Rate: 27% compared to 29% for the same quarter last year.
• Cash Provided by Operations: $622 million for the year, a decrease of $29 million from last year.
• Share Repurchases: 399,000 shares for $31 million.
• Acquisitions: $242 million.
• Dividends: $172 million.
• Capital Expenditures: $107 million, with $67 million related to facility expansion projects.
• Adjusted Effective Tax Rate: 21.5% for the quarter.

• Warning! GuruFocus has detected 4 Warning Sign with GGG.

Release Date: January 28, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Graco Inc (NYSE:GGG) reported a successful acquisition of Corob, which contributed 3% revenue growth in the fourth quarter.
• The company has completed expansion projects for nearly all operations, which positions them well for future demand.
• Graco Inc (NYSE:GGG) has a strong cash flow, providing flexibility for future investments and operations.
• The new global customer-centric operating structure is expected to generate annual savings of approximately $16 million.
• Protective coatings activities showed strong growth across all regions, supported by infrastructure investments and increases in the container market.

Negative Points

• Fourth quarter sales decreased by 3% compared to the same quarter last year, with a 6% decline excluding acquisitions.
• Reported net earnings decreased by 1% to $109 million, with adjusted non-GAAP net earnings down 20%.
• Gross margin rate decreased by 200 basis points due to lower sales volume and unfavorable product and channel mix.
• Total operating expenses increased by 15% due to business reorganization costs, expenses from acquired operations, and litigation costs.
• The industrial segment experienced a 13% revenue decline for the quarter, impacted by weakness in key markets such as China and the semiconductor business.

Q & A Highlights

Q: Can you provide insights on how the quarter's performance compared to expectations, particularly in China and the semiconductor market? A: Mark Sheahan, President and CEO, noted that the process division exceeded expectations, particularly in environmental and LED businesses. However, the industrial segment underperformed due to sharp declines in Asia Pacific and the sealant and adhesive business. The contractor segment also fell short of expectations due to sluggish end markets. Order rates have been steady, aligning with the low single-digit growth guidance for 2025.

Q: How might tariffs impact Graco, given its concentrated manufacturing footprint in Minneapolis? A: Mark Sheahan explained that tariffs were not factored into the January price increase. However, Graco could manage the impact if tariffs are implemented. The company could benefit from potential preferential corporate tax rates for U.S. manufacturers, given its North American footprint.

Q: Can you clarify the outlook for 2025, particularly regarding order rates and seasonality? A: Mark Sheahan confirmed that the outlook is based on current order rates and normal conversion, without embedding significant improvement. David Lowe, CFO, added that negative trends in China and the semiconductor space have stabilized, supporting the growth outlook with normal seasonality.

Q: What are the expected savings from the reorganization, and how will they impact margins? A: David Lowe stated that the reorganization savings are expected to start in the first quarter, with significant benefits in the industrial segment. Christopher Knutson, EVP and Controller, noted that the charges in each segment are a good proxy for the expected savings.

Q: How is the Corob integration progressing, and what is the outlook for its contribution in 2025? A: Mark Sheahan expressed satisfaction with Corob's initial performance and team. The acquisition is expected to contribute low single-digit growth in 2025. Graco aims to leverage its North American presence to introduce Corob to larger customers.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.