GRACO INC
For the period ended Dec 27, 2024. Filed Feb 18, 2025.
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FY2024 · Filed Feb 18, 2025
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Item 7. Results of Operations
Results of Operations
A summary of financial results follows (in millions except per share amounts):
| 2024 | 2023 | |
|---|---|---|
| Net Sales | $2,113.3 | $2,195.6 |
| Operating Earnings | 570.1 | 646.8 |
| Net Earnings | 486.1 | 506.5 |
| Diluted Net Earnings per Common Share | $2.82 | $2.94 |
| Adjusted (non-GAAP)(1): | ||
| Operating Earnings, adjusted | $577.8 | $646.0 |
| Net Earnings, adjusted | 477.1 | 523.9 |
| Diluted Net Earnings per Common Share, adjusted | $2.77 | $3.04 |
(1) Excludes impacts of business reorganization charges, excess tax benefits from stock option exercises, impairment charges, contingent consideration fair value adjustments, pension settlement losses and certain non-recurring tax provision adjustments. See Financial Results Adjusted for Comparability below for a reconciliation of adjusted non-GAAP financial measures to GAAP.
Certain events in the last two years caused fluctuations in financial results. Excess tax benefits related to stock option exercises reduced income taxes by $15 million in 2024 and $10 million in 2023. Business reorganization charges reduced operating earnings in 2024 by $8 million. Other expense for 2023 included a $42 million non-cash pension settlement loss. In 2023, the Company recorded a goodwill impairment and contingent consideration adjustment related to an acquisition that was not material to the financial statements. Other benefits from tax planning activities further reduced income taxes in 2023. Excluding the impacts of those items presents a more consistent basis for comparison of financial results. A calculation of the non-GAAP adjusted measurements of operating earnings, earnings before income taxes, income taxes, effective income tax rates, net earnings and diluted earnings per share follows (in millions except per share amounts):
| 2024 | 2023 | |
|---|---|---|
| Operating earnings, as reported | $570.1 | $646.8 |
| Contingent consideration | — | (8.6) |
| Impairment | — | 7.8 |
| Business reorganization | 7.7 | — |
| Operating earnings, adjusted | $577.8 | $646.0 |
| Earnings before income taxes, as reported | $589.3 | $608.8 |
| Pension settlement loss | — | 42.1 |
| Contingent consideration | — | (8.6) |
| Impairment | — | 7.8 |
| Business reorganization | 7.7 | — |
| Earnings before income taxes, adjusted | $597.0 | $650.1 |
| Income taxes, as reported | $103.2 | $102.3 |
| Pension settlement tax effect | — | 8.8 |
| Other non-recurring tax benefit | — | 4.8 |
| Excess tax benefit from option exercises | 14.9 | 10.3 |
| Business reorganization tax effect | 1.8 | — |
| Income taxes, adjusted | $119.9 | $126.2 |
| Effective income tax rate | ||
| As reported | 17.5% | 16.8% |
| Adjusted | 20.1% | 19.4% |
| Net Earnings, as reported | $486.1 | $506.5 |
| Pension settlement loss, net | — | 33.3 |
| Contingent consideration | — | (8.6) |
| Impairment | — | 7.8 |
| Other non-recurring tax benefit | — | (4.8) |
| Excess tax benefit from option exercises | (14.9) | (10.3) |
| Business reorganization | 5.9 | — |
| Net Earnings, adjusted | $477.1 | $523.9 |
| Weighted Average Diluted Shares | 172.4 | 172.2 |
| Diluted Net Earnings per Share | ||
| As reported | $2.82 | $2.94 |
| Adjusted | $2.77 | $3.04 |
Components of Net Earnings as a Percentage of Sales:
The following table presents an overview of components of net earnings as a percentage of net sales:
| 2024 | 2023 | |
|---|---|---|
| Net Sales | 100.0% | 100.0% |
| Cost of products sold | 46.9 | 47.1 |
| Gross profit | 53.1 | 52.9 |
| Product development | 4.0 | 3.7 |
| Selling, marketing and distribution | 13.0 | 11.9 |
| General and administrative | 9.1 | 7.8 |
| Contingent consideration | — | (0.4) |
| Impairment | — | 0.4 |
| Operating earnings | 27.0 | 29.5 |
| Interest expense | 0.1 | 0.2 |
| Other (income) expense, net | (1.0) | 1.6 |
| Earnings before income taxes | 27.9 | 27.7 |
| Income taxes | 4.9 | 4.6 |
| Net Earnings | 23.0% | 23.1% |
| Net Earnings, adjusted (see non-GAAP measurements above) | 22.6% | 23.9% |
Net Sales
The following table presents net sales by geographic region (in millions):
| 2024 | 2023 | |
|---|---|---|
| Americas(1) | $1,329.3 | $1,338.0 |
| EMEA(2) | 454.2 | 463.9 |
| Asia Pacific | 329.8 | 393.7 |
| Consolidated | $2,113.3 | $2,195.6 |
(1) North, Central and South America, including the U.S. Sales in the U.S. were $1,149 million in 2024 and $1,162 million in 2023.
(2) Europe, Middle East and Africa.
The following table presents the components of net sales change by geographic region:
| 2024 | 2023 | |||||||
|---|---|---|---|---|---|---|---|---|
| Volume and Price | Acquisitions | Currency | Total | Volume and Price | Acquisitions | Currency | Total | |
| Americas | (1)% | 0% | 0% | (1)% | 4% | 0% | 0% | 4% |
| EMEA | (4)% | 1% | 1% | (2)% | 0% | 0% | 3% | 3% |
| Asia Pacific | (16)% | 1% | (1)% | (16)% | (1)% | 0% | (3)% | (4)% |
| Consolidated | (4)% | 1% | (1)% | (4)% | 2% | 0% | 0% | 2% |
In 2024, net sales declined in all regions and in most end markets compared to 2023. Declines in global semiconductor markets drove sales lower in the Americas and Asia Pacific. Reduced project activity for automotive, electronics and e-mobility end markets, especially in China, furthered sales declines in Asia Pacific. In the Americas, strong finishing system sales were unable to offset soft residential and non-residential construction markets. In EMEA, decreased industrial activity in Western Europe led to lower sales in 2024.
Gross Profit
The gross profit margin rate for 2024 increased slightly as the favorable effects of realized pricing more than offset unfavorable product and channel mix, lower sales volume and higher product costs.
Operating Expenses
Total operating expenses increased $38 million (7 percent) for 2024 compared to 2023. Operating expenses for 2024 included $13 million in incremental litigation costs associated with a trial that concluded in December of 2024, $13 million of investments in new product development and other growth initiatives, $7 million of business reorganization costs and $7 million of expenses from acquired operations. Reductions in volume and earnings-based expenses of $14 million for the year partially offset the increase in operating expenses. Investment in new product development in 2024 was $87 million, approximately 4 percent of sales.
Operating Earnings
Sales declines and increased operating expenses led to a 12 percent decrease in operating earnings. Operating earnings expressed as a percentage of sales in 2024 decreased approximately 3 percentage points compared to 2023 as lower sales, higher product costs and higher expenses impacted profitability for the year.
Interest & Other Expense
Interest expense was $2 million lower for 2024 compared to 2023 as private placement debt was repaid in the third quarter of 2023. Excluding a prior year pension settlement loss of $42 million, other income increased $13 million for 2024, largely due to increased interest income.
Income Taxes
The effective income tax rate for 2024 was 18 percent, up 1 percentage point from 2023. The increase in 2024 was largely due to non-recurring tax benefits in 2023, variations in excess tax benefits from stock option exercises and the unfavorable effects of foreign earnings taxed at higher rates than the U.S.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.