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Demand Remains Strong but Supply Chain Issues Pressure Graco’s Third-Quarter Margins

Analyst Note

| Krzysztof Smalec, CFA |

Wide-moat-rated Graco’s third-quarter adjusted EPS of $0.57 fell $0.06 short of the FactSet consensus estimate. While Graco’s sales were roughly in line with our expectations, margins were adversely affected by supply chain interruptions and cost inflation, especially in the contractor segment. Management reaffirmed its guidance for full-year 2021 and continues to expect organic revenue growth in the mid- to high-teens on a constant-currency basis. We’ve bumped our fair value estimate for Graco to $73 from $72, as time value of money more than offset our slightly more muted near-term expectations. We see shares as fairly valued at current levels.

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Company Profile

Business Description

Graco manufactures equipment used for managing fluids, coatings, and adhesives, specializing in difficult-to-handle materials. Graco’s business is organized into three segments: industrial, process, and contractor. The Minnesota-based firm serves a wide range of end markets, including industrial, automotive, and construction, and its broad array of products include pumps, valves, meters, sprayers, and equipment used to apply coatings, sealants, and adhesives. The firm generated roughly $1.7 billion in sales and $410 million in operating income in 2020.

88-11th Avenue Northeast
Minneapolis, MN, 55413
T +1 612 623-6000
Sector Industrials
Industry Specialty Industrial Machinery
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 2,800