QUOTE AND NEWS
TheStreet.com  Oct 13  Comment 
NEW YORK (TheStreet) -- Oppenheimer initiated coverage of Graco Inc. by upgrading shares to "outperform" from "perform" and a price target of $79, viewing current valuation accommodative and not fully capturing. Analysts foresee sustained...
newratings.com  Oct 8  Comment 
WASHINGTON (dpa-AFX) - Carlisle Companies Inc. (CSL), a diversified manufacturing company, has agreed to acquire from Graco Inc. (GGG) and its subsidiary Finishing Brands Holdings, Inc. their held separate liquid finishing business assets in a...
StreetInsider.com  Oct 8  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/Graco+%28GGG%29+Announces+%24590M+Sale+of+Liquid+Finishing+Unit+%28ITW%29+%28CSL%29/9895430.html for the full story.
StreetInsider.com  Oct 6  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/FTC+Sends+Order+to+Graco+%28GGG%29+Divest+Liquid+Finishing+Business+Assets/9889524.html for the full story.
SeekingAlpha  Oct 2  Comment 
By The Value Investor: Graco (GGG) started the fourth quarter by announcing the small acquisition of Alco Valves, adding modestly to its industrial operations in Europe. The deal is small and looks fair, as the company's overall strategy of...
Market Intelligence Center  Aug 25  Comment 
For a hedged play on Graco Inc. (GGG), MarketIntelligenceCenter.com’s option-trade picking algorithms recommend the Nov. '14 $75.00 covered call for a net debit in the $73.42 area. That is also the break-even stock price for the covered call....
SeekingAlpha  Jul 11  Comment 
ByBrian Grosso: Recently, I've been attempting to become a more efficient investor through 1 hour general research of a variety of companies that show up on my screener or that I intuitively like from a glance. In these sessions, I've tried to...
New York Times  Jul 1  Comment 
An investigation showed that a defective buckle that caused a recall on forward-facing car seats affected the safety of rear-facing types, too.
DailyFinance  Jul 1  Comment 
Graco Inc. (NYSE: GGG) announced today that it will release its Second Quarter 2014 earnings after the New York Stock Exchange closes on Wednesday, July 23, 2014. A full text copy of the earnings announcement will be available...
CNNMoney.com  Jun 30  Comment 
Read full story for latest details.




 
TOP CONTRIBUTORS

This article describes the industrial liquids applicators company. For baby products, see Newell Rubbermaid (NWL).

Graco Inc. (NYSE: GGG) makes devices to handle and apply industrial liquids - which can include lubricants, sealants, and paint. The company's customers are generally in the manufacturing and construction industries.[1] Graco owns a 60% share of the paint sprayer market.[2]

In fiscal 2007, Graco's revenue increased across the board, except for a 4.31% decrease in revenue from contractors, a confluence of rising steel prices, the main raw material used in Graco's products, and a sluggish construction industry, a main driver for most contractors' businesses. A weak dollar helped offset these trends, and Graco's overall revenue increased by 3.04% from 2006 to 2007.[3]

Graco competes with Nordson, Illinois Tool Works, Idex, and Ingersoll-Rand Company.[4][5]

Business Overview

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2007 Revenue by Geographic Segment. Year ending December 28[4]
Graco Revenue and Operating Income ($ in millions)[3]
Segment 2007 2006 2005
Industrial 444.7 416.5 367.1
Contractor 306.7 320.5 305.3
Lubrication 89.9 79.5 59.3
Total Revenue 841.3 816.5 731.7
Operating Income 608.9 590.5 540.6

In 2007, favorable exchange rates accounted for 2.08% of the 3.04% growth in total revenue. Rising steel prices and decreasing spending in the construction industry led to this stagnant growth, particularly affecting the contractor segment.[3]

Business Segments

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2007 Revenue by Segment. Year ending December 28[3]
  • Industrial (53% of 2007 Sales): The largest of Graco's segments, the industrial sector consists of the equipment and services sold to customers primarily in the motor vehicles, electronics, and furniture industries.[6] Revenue from the industrial segment grew by 6.77% from 2006 to 2007, and can be divided into two sub-categories:[3]
    • Industrial Products: This segment consists of paint applicators, equipment that dispenses chemicals and liquids into semi-solid foods, and equipment to refinish and repair automobiles. Graco's line of paint applicators include paint supply pumps and applicators used primarily for the automobile and furniture industries. In the chemical and food processing industries, Graco manufactures sanitary pumps, such as its 3-A sanitary pump used for dairy products. Its main product in the automobile industry is the Sharpe spray gun, which refinishes various motor vehicles.[6]
    • Applied Fluid Technologies includes equipment that applies protective coatings, sealants and adhesives, and equipment used to create injection-molded polyurethane parts. Its main product in its line of protective coating applicators is its Reactor line of pumps that applies foams for insulation of walls, roofs, truck beds, and pipes. In its line of sealant and adhesive applicators, Graco provides the Therm-O-Flow, which supplies adhesives to roll coaters used in the manufacture of tapes and labels, and is also used for the manufacture of insulating glass. Graco's other products in this family are primarily used for bonding and sealing consumer products in the electronics and automotive industries. Lastly, this segment consists of polyurethane equipment and systems used for functions such as road noise reduction and production of molded parts for automobiles, trucks, and consumer products.[6]
  • Contractor (36% of 2007 Sales): This segment manufactures airless paint and texture sprayers, accessories, and various spare parts to painters in the construction and maintenance industries. The company's line of paint sprayers includes products for the application of road markings, the application of texture to walls, ceilings, and roofs, and the application of paint to walls and other structures. Graco has a 60% share of the domestic market for paint sprayers, a tool that eighty percent of US paint contractors use.[2] Although the majority of sales from this segment comes from North America, Graco has developed new products to target other geographic regions -- for example, its Mark X texture sprayer was developed in 2006 specifically for Europe and the Asia Pacific, markets in which less drywall is used. Texture sprayers are primarily used to add various patterns to walls and ceilings, as opposed to a smooth finish.[7] From 2006 to 2007, contractor revenue decreased by 4.31%, due to the sluggish construction industry and the rising price of the raw material steel.[8]
  • Lubrication (11% of 2007 Sales) focuses on pumps, applicators and accessories for the motor vehicle lubrication market. Examples of products in this area include small electric fuel and oil transfer pumps for use to supply fuel and oil to ranch, farm and construction machinery and off-road vehicles. In July 2006, Graco acquired Lubriquip, which expanded the segment to include systems for the automatic lubrication of factory machine tools.[9] The primary customers of Graco's lubrication segment include fast oil change facilities, service garages, fleet service centers, automobile dealerships, auto parts stores and original equipment manufacturers (OEMs). From 2006 to 2007, revenue in this segment increased by 13.08%.[10]

Key Trends and Forces

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Rising steel prices hurt Graco's business

From April 2007 to April 2008, the price of steel rose significantly, up from $617/tonne to $915/tonne for a hot coil of rolled steel.[11] Rising steel prices negatively impact Graco's business because it raises the costs of manufacturing, especially in the contractor segment, thus decreasing the profit the company obtained from its products.[12]

Reduced spending in the construction industry negatively impacts Graco's revenue in its contractor segment

Graco's contractor segment primarily caters to the construction and home maintenance markets, and thus depends on the economic well-being of both. From May 2007 to May 2008, the value of total construction put in place fell from approximately $1,154.60 billion to $1,085.23, a 6.40% decrease.[13] This decrease in spending on construction affected Graco's contractor segment, factoring in to the 4.31% decrease in contractor revenue from 2006 to 2007.[14]

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Weak U.S. Dollar benefits Graco's international sales

Because Graco reports its revenues in U.S. dollars but obtained 40.52% of its 2007 revenue internationally, it is heavily affected by exchange rates. When the value of the dollar depreciates, Graco's international sales grow in dollar terms. From 2006-2008, the dollar depreciated relative to the currencies of its main markets: the Euro, the Canadian Dollar, and the Japanese Yen.[15][16][17] In fiscal 2007, these favorable exchange rates led to an increase of $17 million in revenue, or 2.08 of the total 3.04 percent growth.[18]

Competition

  • Nordson Corporation (NDSN) primarily competes with Graco's Industrial segment. Nordson offers a wide variety of products including adhesive dispensers and sealant applicators for the automotive industry.[19]
  • Illinois Tool Works (ITW) competes with Graco in all segments, manufacturing lubricants, sealant applicators, and various products for the construction and food processing industries. [20]
  • Idex (IEX) manufactures products in four segments: fluid and metering, health and science, dispensing, and fire and safety. Its products in the fluid and metering and dispensing segments compete with Graco's industrial and lubrication segments.[21]
  • Ingersoll-Rand Company (IR) manufactures multi-brand commercial products. Its products for household construction, food-processing, and industrial efficiency compete with Graco's contractor and industrial segments.[22]
Company 2007 Revenue ($ in millions) 2007 Revenue for Adhesives/Fluid Dispensers ($ in millions) 2007 Operating Income ($ in millions) Operating Margin
Graco[23] 841.34 444.70 232.48 27.63%
Nordson[24] 993.65 509.57[25] 152.14 15.31%
Illinois Tool Works[26] 16,170.61 N/A 2,623.76 16.23%
Idex[27] 1,358.63 748.26[28] 255.08 18.77%
Ingersoll-Rand[29] 8,763.10 2,877.10[30] 1,057.80 12.07%




References

  1. GGG 2007 10-K, Item 1: Business
  2. 2.0 2.1 Graco Morningstar Report, May 2008
  3. 3.0 3.1 3.2 3.3 3.4 GGG 2007 10-K, Item 7: Management’s Discussion and Analysis of Financial Condition, Segment Results
  4. 4.0 4.1 GGG 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition, Results of Operations
  5. Google Finance: GGG Related Companies
  6. 6.0 6.1 6.2 GGG 2007 10-K, Item 1: Business, Industrial Segment
  7. GRACO: Press Release
  8. GGG 2007 10-K, Item 1: Business, Contractor Segment
  9. GGG 2007 10-K, Notes to Consolidated Financial Statements, Section L: Acquisitions
  10. GGG 2007 10-K, Item 1: Business, Lubrication Segment
  11. 11.0 11.1 SteelOnTheNet: U.S. Steel Prices
  12. GGG 2007 10-K, Item 1: Business, Raw Materials
  13. Census Bureau: Value of Construction Put in Place
  14. GGG 2007 10-K, Item 1A: Risk Factors, Major Customers
  15. 15.0 15.1 EUR to USD Exchange Rates
  16. USD to CAD Exchange Rates
  17. USD to JPY Exchange Rates
  18. GGG 2007 10-K, Item 7A: Quantitative and Qualitative Disclosures About Market Risk
  19. Nordson: Business Segments
  20. ITW: Engineered Products and Specialty Systems
  21. IDEX Corporation: About IDEX
  22. Ingersoll-Rand Company: About Us
  23. Google Finance: GGG
  24. Google Finance: NDSN
  25. NDSN 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition
  26. Google Finance: ITW
  27. Google Finance: IEX
  28. IEX 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition
  29. Google Finance: IR
  30. IR 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition
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