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WEAK INTERNATIONAL ECONOMIES LOWER GRACO SECOND QUARTER SALES

 MINNEAPOLIS, July 15 /PRNewswire/ -- Graco Inc. (NYSE:GGG) today reported that weak economies in Europe and Japan caused net sales in the second quarter ended June 25, 1993, to decline 8 percent to $79,415,000, from sales of $86,118,000 for the same period a year ago. Net earnings for the period were $4,114,000, or 54 cents per share, a 14 percent decrease from the second quarter of 1992. Last year's second quarter earnings of $4,810,000 (63 cents per share) included a $1,500,000 gain ($900,000 after taxes, or 12 cents per share) resulting from the sale of a wholly owned subsidiary and a related joint venture in April 1992.
 Company Chairman and Chief Executive Officer David A. Koch said "Sales in Europe and Japan have been dramatically affected by the listless economies of these countries. This current lack of sales momentum in these markets offset sales increases in the U.S., our improved gross margins, and a lower effective tax rate."
 GRACO INC. AND SUBSIDIARIES
 (In thousands, except per share amounts)
 Second Quarter Ended Six Months Ended
 (13 Weeks) (26 Weeks)
 6/25/93 6/26/92 6/25/93 6/26/92
 Net sales $79,415 $86,118 $157,226 $159,003
 Net earnings before
 changes in
 accounting
 principles 4,114 4,810 6,686 6,744
 Cumulative effect of
 change in accounting
 principle relating
 to postretirement
 benefits -- -- -- (6,768)
 Cumulative effect
 of change in
 accounting principle
 relating to income
 taxes -- -- -- 924
 Net earnings $4,114 $4,810 $6,686 $900
 Net earnings (loss)
 per common share:
 Before changes in
 accounting
 principles $.54 $.63 $.87 $.89
 Changes in
 accounting
 principles -- -- -- (.77)
 Net earnings $.54 $.63 $.87 $.12
 Sales in the Americas increased 6 percent to $52,125,000, led by unit sales increases in the Industrial/Automotive Equipment Division. Contractor Equipment Division sales in the Americas declined from very strong 1992 second quarter levels. Sales in Europe declined 32 percent to $14,022,000, while sales in the Pacific were $13,268,000, 19 percent below the same period last year, both as the result of reduced shipments of circulating systems to the automotive industry and unit decreases in sales of standard product in Europe and Japan. The sales decline in Japan was partially offset by increased shipments to the rest of the Pacific region.
 Gross profit margins increased to 50 percent of sales in the second quarter compared to 47 percent in the first quarter of 1993 and 48 percent in the second quarter of 1992. This improvement resulted from higher manufacturing productivity, fewer low-margin systems sales, and a reduction in inventories to lower cost LIFO layers because of improved processes.
 Second quarter operating expenses declined 3 percent compared with the same period in 1992 due to the continuing effects of cost reduction actions undertaken late last year. Because of reduced tax requirements related to foreign earnings, the company has adjusted its expected annual tax rate for 1993 to 32 percent, resulting in a 27 percent income tax rate for the second quarter of 1993.
 Results for the first six months of 1992 have been restated to reflect the company's adoption of Statements of Financial Accounting Standards (SFAS) No.106, Employers' Accounting for Postretirement Benefits Other Than Pensions, and SFAS 109, Accounting for Income Taxes, effective as of the first day of the 1992 fiscal year. After provision for cumulative effect of these changes, the company had net earnings of $900,000, or 12 cents per share, in the period ended June 26, 1992.
 Sales for the six months were $157,226,000, a decrease of 1 percent from the same period last year. Sales to customers in the Americas increased 9 percent to $104,468,000. Sales in Europe declined 22 percent to $27,504,000, while sales in the Pacific declined 8 percent to $25,254,000. Backlog at June 25, 1993 was $23 million, equal to the beginning of the quarter but down from the $29 million at the end of the second quarter of 1992.
 Koch said, "We are encouraged by the 9 percent year-to-date increase in orders in the Americas. Year-to-date orders have declined by 1 percent in the Pacific and by 8 percent in Europe, but our overall results are satisfactory, given the recessionary economies of these important Graco markets. Our gross profit margins have improved and we have taken important steps to control expenses and improve efficiencies. While the timing of improved business conditions overseas is still unclear, we expect to achieve a reasonable level of performance for the balance of the year."
 Graco Inc. supplies technology and expertise for the management of fluids in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and apply fluid materials. A recognized leader in its specialties, Minneapolis-based Graco serves customers around the world in the manufacturing, processing, construction and maintenance industries.
 GRACO INC. AND SUBSIDIARIES
 Consolidated Statements of Earnings
 (In thousands, except per share amounts)
 Second Quarter Ended Six Months Ended
 (13 Weeks) (26 Weeks)
 6/25/93 6/26/92 6/25/93 6/26/92
 Net sales $79,415 $86,118 $157,226 $159,003
 Cost of products sold 40,094 44,582 81,696 80,571
 Gross profit 39,321 41,536 75,530 78,432
 Product development 2,865 2,562 5,642 5,192
 Selling 20,791 21,300 40,231 41,567
 General and
 administrative 9,306 10,108 18,456 19,998
 Operating profit 6,359 7,566 11,201 11,675
 Interest expense 537 666 1,143 1,418
 Other (income)
 expense, net (Note) 158 (1,110) 272 (1,037)
 Earnings before income
 taxes and changes
 in accounting
 principles 5,664 8,010 9,786 11,294
 Income taxes 1,550 3,200 3,100 4,550
 Earnings before changes
 in accounting
 principles 4,114 4,810 6,686 6,744
 Cumulative effect of
 change in accounting
 principle relating
 to postretirement
 benefits -- -- -- (6,768)
 Cumulative effect of
 change in accounting
 principle relating
 to income taxes -- -- -- 924
 Net earnings $4,114 $4,810 $6,686 $900
 Earnings (loss)
 per common share:
 Before changes in
 accounting principles $.54 $.63 $.87 $.89
 Cumulative effect of
 change in accounting
 principle relating
 to postretirement benefits -- -- -- (.90)
 Cumulative effect of
 change in accounting
 principle relating to
 income taxes -- -- -- .13
 Net earnings $.54 $.63 $.87 $.12
 Weighted average number
 of common shares 7,651 7,582 7,628 7,561
 Note: Included in 1992 other income is a gain of $1,500,000 resulting from the April 1992 sale of the Company's wholly owned subsidiary, Lockwood Technical, Inc., and a related Japanese joint venture affiliate.
 All figures are subject to audit and adjustment at the end of the fiscal year.
 -0- 7/15/93
 /CONTACT: James A. Graner, 612-623-6635, or David L. Schoeneck, 612-623-6679, both of Graco/
 (GGG)


CO: Graco, Inc. ST: Minnesota IN: SU: ERN

AL -- MN013 -- 1846 07/15/93 10:18 EDT
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Date:Jul 15, 1993
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