What happened
Second-quarter results from pump and flow control manufacturer Graco (GGG -0.69%) fell short of expectations, and the company is going to have a hard time in the coming quarters matching last year's strong second half. Investors appeared disappointed, sending shares of Graco down by as much as 10% on Thursday. As of 2:11 p.m. ET, the stock was still down by 8.5%.
So what
Graco reported adjusted earnings of $0.75 per share in the second quarter on sales of $559.6 million, falling short of analysts' consensus expectations for $0.80 per share in earnings on sales of $576 million. Net sales were up 2% year over year, and gross profit margin increased by 3 percentage points, but the gains were not as strong as Wall Street had expected.
The company reported a mixed demand environment for its products, with record quarterly sales from both its process and industrial segments. But sales to Asia were soft, CEO Mark Sheahan called contractor performance "mixed," and the company saw declines in its home center and pro paint channels.
Top product categories on the growth front included pavement, protective coatings, and spray foam products.
Now what
Graco is standing by its forecast for low-single-digit percentage revenue growth for the year. Sheahan said that order rates are in line with internal expectations. "However, comparisons for the remainder of the year will be more difficult as a result of pricing actions implemented in the second half of last year," he said.
This is a solid operator, and it has been a market-beating stock over the past five years. There is nothing wrong at Graco, but the company is bound to the cyclicality of its end markets. With so much talk of inflation and worries about where the economy is going from here, it is no surprise that Graco's customers are not falling over themselves to stock up on its offerings.
